Chapter 2 competing with it- MIS- MBA-1st Trimester- MBS

1. Chapter 2
Competing with
Information Technology

2. Fundamentals of Strategic Advantage
Strategic IT
• “Technology is no longer an afterthought in forming business
strategy, but the actual cause and driver”
• Any information system that uses IT to help an organization
gain a competitive edge, reduce competitive disadvantages or
meet other strategic objectives.
• Investment in technology and IS help companies adopt
strategies and business processes that enable it to reengineer
and reinvent itself to survive and succeed in today’s dynamic
business environment
• Major role of IS is to provide support for strategies for
competitive advantage
– Involves using IT to develop product, services and capabilities
that give company major advantages over the competitive
forces in the global market place

3. Competitive Forces and Strategies
• How can a business use information systems to apply competitive
strategy?
• A company can survive and succeed in the long run only if it develops
strategies to confront five competitive forces
1. Rivalry of Competition
– Competition is a positive character
– Encourages and requires constant effort to gain advantage
2. Threat of new entrants
– Internet has created many ways to enter the marketplace
quickly and with relatively low cost
3. Threat of substitutes
– Recurring effect is apparent daily in industries
4. Bargaining power of customer and suppliers
– If customer’s bargaining power gets too strong, they drive
prices to low levels or just refuse it
– If supplier’s bargaining power gets too strong, it can force the
prices of raw materials and goods to high levels or just stop
the flow of essential parts

4. Competitive Strategies
1. Cost leadership
1. Low cost producer in the industry
2. Finding ways to help suppliers and customers reduce
their cost
3. Adopting strategy to increase the cost of competitors
Ex.: PCS for less damaged output
2. Differentiation:
1. Developing ways to differentiate its product/service from
competitors
2. Reducing the differentiation advantage of competitors
Ex.: Responsiveness thru Expert System Access for Tech.
support available 24 hrs
Walmart price checker

5. Competitive Strategies
3. Innovation
1. Finding new ways of doing business
2. Developing unique products/services
3. Entering unique market and niches
4. Making radical changes to business process for
production and distribution
Ex.: Automated Order Processing (Pull Vs. Push Srategy)
Online support from Facebook
4. Growth
1. Expanding production capacity
2. Expanding markets to global arena
3. Diversity/integrate into other products
Ex.: software and information sale thru eCommerce
Online courses

6. Competitive Strategies
5. Alliance
1. Establishing new business linkages
2. Alliance with customer, suppliers, competitors,
consultants
3. Merger, acquisitions, joint venture, formation of
virtual companies
4. Agreement between a business and its trading
partners
Ex.: Relationship strategy – Infrastructure Alliance, IS
integration
Mutually beneficial interenterprise information
system

7. Competitive Strategies
Strategic Uses of Information Technology:
• How can business managers use investment
in the IS and IT to support firm’s competitive
strategy?
– Lock in customer/suppliers
– Create switching cost
– Raise barrier to entry
– Leverage investment in IT

8. Strategy Company Strategic Use of IT Business Benefits
Cost Leadership •Dell Computer
•Priceline.com
•eBay.com
•Online Build to order
•Online seller Bidding
•Online Auction
•Lowest –cost producer
•Buyer-set pricing
•Auction-set pricing
Differentiation •AVNET Marshall
•Moen Inc
•Consolidated
Freightways
•Cust/Sup eCommerce
•Online Customer design
•Online Shipment tracking
•Increase in market share
Innovation •Chrales Schwab
•Fedex
•Amazon
•Online discount stock
trading
•Package tracking & Flight
Mgmt
•Online full-service
customer system
•Increase in global market
•Market leadership
•Market leadership
Growth •CitiGroup
•Walmart
•Toys ‘R’ Us
•Global inranet
•Merchandise ordering by
satellite network
•POS inventory tracking
•Increase in global market
•Market leadership
•Market leadership
Alliance •Walmart/P&G
•Cisco Systems
•Staples Inc and
partners
•Automated inventory
replenishment
•Virtual manufacturing
Alliance
•Online one-stop
shopping with partners
•Reduced inventory cost/
increased sales
•Agile market leadership
•Increase in market share

9. Building a Customer Focused Business
• The driving force behind the world economy
growth has transformed from manufacturing
volume to improving customer value
• So the key success factor is improving customer
value
• The chief business value of becoming customer
focused business lies in its ability to
– Keep customer loyal
– Anticipate future needs
– Respond to customer concern
– Provide top-quality customer service

10. Building a Customer Focused Business
• Strategic focus on customer value recognizes that
the primary determinant of customer’s
perception of value is Quality rather than Price
• Companies that provide best value are the ones
that
– Keep track of individual preferences
– Keep up with the changing market trends
– Supply product/service/information any time any
where
– Offer fast service
– Provide top-quality product/service/information
tailored to individual customer preferences

11. Building a Customer Focused Business
• Internet technologies with CRM and ECS create new
channel for interactive communication within a company
and with customers and other business partners
– Cross-functional collaboration with customers in product
development, marketing, delivery, service and support
• Customer-focused businesses streamline their business
processes to provide value to their customer by
– Developing CRM that provide complete customer information to
employees needed to provide top-quality personalized service
– Ex. Universal Orlando Resort
• Guitar Hero competition
• Data drilling of spending
• Annual Pass Holders Florida residents
• A successful business nurtures an online community of
customers, employees and business partners that builds
great customer loyalty.

12. Let customers place orders
directly Let customers place orders
through distribution partners
(Internets
Extranet)
Build customer database
segmented by preferences
and profitability
Give all employees a
complete view of each
customer
(Intranet)
Make loyal customers feel
special with website
personalization
Build a web community of
customers, employees and
partners
Let customers check order
history and delivery status
(Internet)
Link employees and
distribution partners to
databases and customers
(Internets
Extranet)
Customer
Database
Transaction
Database

13. The value chain and Strategic IS
• Value chain is a set of activities that a firms
operating in a specific industry performs in order
to deliver valuable products and services for
markets
• Value chain concept views a firm as a chain or
network of business activities that adds value to
its products and services and thus add a margin
of value to business and its customers
• VC defines two categories of business processes
– Primary processes are business activities that is
directly related to manufacturing and distribution of
product and services
– Support processes are business activities that provide
support to day-to-day operation

14. The value chain and Strategic IS
• Companies should ask themselves where they
can deliver the best value to their customers
• Value chain suggest that companies should
focus in processes that it can provide value to
the business firm and its customers
• Value Chain Analysis:
– Accessing each business process and identifying
them for elimination and improvement that can
result into cost-saving or enhanced product
capacity

15. Administrative Coordination and support services
Collaborative Workflow Intranet
Human Resource Management
Employee Benefits Intranet
Technology Development
Product Development Extranet with Partners
Procurement of Resources
eCommerce web portals for suppliers
Inbound
Logistics
Automated JIT
Warehousing
Operations
Computer
Aided Flexible
Manufacturing
Outbound
Logistics
Online POS
Online
Order
Processing
Marketing &
Sales
Targeted
Marketing
Mass
Customization
With CRM
Service
Online customer
support
Customer
Relationship
Management
SupportProcessPrimaryProcess
Competitive
Advantage
Value Chain of a Firm

16. Business Process Reengineering
• BPR is considered one of the most important
implementations of competitive strategies
• Reengineering is fundamental rethinking and radical
redesign of business processes to achieve dramatic
improvements in cost, quality, speed and service.
• BPR is the analysis and redesign of workflow within a
company
• BPR combines the strategy of promoting business
innovation with the strategy of making major
improvements in business processes so that the
company can become a much stronger and more
successful competitors in the market
– McDonald’s precooked patties and JIT Inventory

17. Business Process Reengineering
• Making radical changes to the business
process to dramatically improve efficiency and
effectiveness is not an easy task
• BPR does have high risk of failure
• It can case disruption to the organizational
environment
• Many companies have used cross-functional
ERP software with mixed results
– Reengineer, Automate and Innovate ->
Manufacturing, Human resources, Distribution
and Finance

18. Business Process Reengineering
• Organizational redesign, along with the use of IT,
can play a major role in reengineering
• Creating self-directed cross-functional process
teams
– Teams of employees from different departments
including engineering and research, marketing,
manufacturing, customer service, distribution
• Working as a team on product development
process
– Case manager
• Handles almost al tasks in business process instead
of splitting them among many different specialists

19. Order Management Process
Proposal Commit
ment
Configur
ation
Credit
Checking
Delivery Billing Collectio
ns
Sales Manufacturing Finance Logistics
Reengineering Order Management
Customer relationship management systems using corporate intranets and Internet
Supplier-managed inventory systems using the Internet and extranets
Cross-functional ERP software for integrating manufacturing, distribution, finance and
human resource process
Customer-accessible eCommerce website for order entry, status checking, payment,
and service
Customer, product and order status database accessed via intranets and extranets by
employees and suppliers

20. Business Process Reengineering
The role of IT in BPR
• IT can substantially increase the efficiency of business
processes, and communication and collaboration among
people who are responsible for their operation and
management
• It can reengineer the nature of the workflow
• Workflow is the way to make people, information and computer work
together consistently and efficiently to produce the results needed.
Manufacturer
Manufacturer
Manufacturer
Distributor Retailer
Retailer
Customer
Customer
Customer
Costperitem
Value chain analysis: Disintermediation to the consumer

21. Business improvement Vs. BPR
Business Improvement BPR
Level of Change Incremental Radical
Process change New Version Brand new
Starting point Existing process Clean slate
Frequency of change One-time or continuous Periodic one-time change
Time required Short Long
Scope Narrow Broad
Horizon Past/present Future
Participation Bottom-up Top-down
Risk Moderate High
Path to Execution Cultural Cultural, structural
Primary Enabler Statistical Control Information Technology

22. Becoming and Agile Company
• Changing Environment to do business leading
it to become agile to respond keyed to
customer value
• The ability of a company to prosper in rapidly
changing & continually fragmenting global
markets for high quality, high performance,
customer-configured products and services.
• A company that can make a profit with broad
product ranges with short model lifetimes and
can produce orders individually and in
arbitrary lot sizes.

23. 4 strategies to be an Agile Company
1. An agile company ensures that the customers
perceive its products/services as solution to
individual problem
– Price -> Value |Price not-> cost
2. An agile company cooperates with
customers, suppliers, other partners and also
competitors
– Business can bring products to markets as rapidly
and cost-effectively as possible

24. 4 strategies to be an Agile Company
3. An agile company organizes so that it thrives
on change and uncertainty
– Flexible organization structure keyed to
requirements of constantly changing customer
opportunities
4. An agile company leverages the impact of its
people and the knowledge they possess
– Nurtures entrepreneurial spirit by providing
powerful incentive for responsibility, adaptation
and innovation

25. Dell- An Agile company
• 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 2 hours worth of part
inventory

26. Creating Virtual Company
• The most important strategic use of IT is to form a Virtual
Company
• Virtual Company is an organization that uses IT to link
People, Information, Asset and Idea
• V.C. forms virtual workgroups and support alliances with
business partners that are interlinked by internet,
intranet and extranet
• Virtual workgroups and alliances are flexible and
adaptable keyed to exploit fast-changing business
opportunities
• Highly responsive to today’s turbulent business
environment

27. Strategies of Virtual Companies
• Share infrastructure and risk with alliance
partners
– Material Requirement Planning linked to suppliers
for JIT delivery
– Dampen the bull-whip effect of procurement
• Link complementary core competencies
– Value chain analysis
• Reduce concept to cash time through sharing
– Concept, design, manufacturing thru ECS, agile

28. Strategies of Virtual Companies
• Increase facilities and market coverage
– Growth strategy with IT
– Product differentiation thru incorporation of IT
technologieslike Self-checkout kiosks, Package tracking
• Gain access to new markets and share market or
customer loyalty
– Dell sales samsung tv and smartwatches, WD ssds and
hdds, garmin watch, McAfee sercurity
• Migrate from selling products to selling solution
– Transformation of industry

30. Building Knowledge-Creating Company
• In an economy where the only certainty is uncertainty,
the one sure source of competitive advantage is
knowledge
• When market shifts, technology proliferates, competitors
multiply, products become obsolete almost overnight
– Successful companies consistently create new
knowledge, disseminate it and quickly embody that
new knowledge into their products and services
• Knowledge-creating companies or Learning
Organization exploit 2 kinds of knowledge:
– Explicit Knowledge: the data, document and things written
down or store on computers
– Tacit Knowledge: “How-tos” knowledge that resides in
workers

31. Building Knowledge-Creating Company
• Tacit Knowledge:
– Long-time employees posses experience about
enterprise operation
– Never shared or codified because
• no one asked for it
• no incentive to do so
• No formal mechanism to record it
• Knowledge management creates techniques,
technologies, systems and rewards for inspiring
employees to share their know-how and make
better use of their accumulated workplace and
enterprise knowledge

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

33. Knowledge Management System
• Making knowledge available to others is the central
activity of knowledge-creating company.
• KMS manages organizational learning and business
know-how
• KMS helps knowledge workers to create, organize and
make those business knowledge available wherever
and whenever it’s needed
• Knowledge could be information about
– Processes, procedures, patents, reference works, formulas,
best practices, forecasts, fixes
• Integration and application of accumulated knowledge
helps company become innovative and agile provider
of high-quality products/services as well as formidable
competitor