Chapter 2
Competing with
Information Technology
McGraw-Hill/Irwin
Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.
Learning Objectives

Identify basic competitive strategies and
explain how a business can use IT to confront
the competitive forces it faces

Identify several strategic uses of IT and give
examples of how they can help a business
gain competitive advantages

Give examples of how business process
reengineering frequently involves the strategic
use of IT
2-2
Learning Objectives

Identify the business value of using Internet
technologies to become an agile competitor
or to form a virtual company

Explain how knowledge management systems
can help a business gain strategic advantages
2-3
Case 1: Reinventing IT as a Strategic Business Partner

Apart from providing reliable and excellent
IT services, IT should provide innovative
solutions to business challenges

IT is no longer about supporting or
automating a business
– It’s about innovating, improving, and
reinventing it

IT is now a ground-floor business partner,
rather than an after-the-fact business tool
2-4
Case Study Questions

What business and political challenges are
likely to occur as a result of the transformation
of IT from a support activity to a partner role?

What implications does this shift in the strategic
outlook of IT have for traditional IT workers and
the educational institutions that train them?
– How does this change the emphasis on what
knowledge and skills the IT person of the future
should have?
2-5
Case Study Questions

Do you agree with the idea that technology is
embedded in just about everything a company
does?
– Provide examples, other than those in the
case, of recent product introductions that could
not have been possible without heavy reliance
on IT
2-6
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
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Competitive Forces and Strategies
2-8
Five Competitive Strategies
Cost Leadership
Differentiation
Strategies
Alliance
Innovation
Growth
2-9
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

Not everything innovative serves to
differentiate one organization from another
– Likewise, not everything that differentiates
organizations is innovative
2-10
Ways to Implement Basic Strategies
2-11
Other Competitive Strategies
Strategy
Lock in customers and suppliers
Create switching costs
Raise barriers to entry
Build strategic IT capabilities
Leverage investment in IT
2-12
Customer-Focused Business
Business value
in customer
focus
Keeps customers loyal
Anticipates their future needs
Responds to customer concerns
Provides 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…
Track individual
preferences
Supply products,
services, and
information
anytime,
anywhere
Keep up with market
trends
Tailor customer
services to the
individual
Use CRM
systems to focus
on the customer
2-14
Building Customer Value via the Internet
2-15
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 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
2-16
Using IS in the Value Chain
2-17
Strategic Uses of IT
Companies that emphasize strategic business use
of IT use it to gain competitive differentiation
Products
Services
Capabilities
2-18
Reengineering Business Processes

Called BRP or Reengineering
– Fundamental rethinking and radical redesign
of business processes
– Seeks dramatic 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
2-19
BPR vs. Business Improvement
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The Role of Information Technology

IT plays a major role in reengineering most
business processes
– Can substantially increase process efficiency
– Improves communication
– Facilitates collaboration
2-21
Reengineering Order Management
2-22
Reengineering Order Management
IT that supports the reengineering process…
CRM systems using intranets and the Internet
Supplier-managed inventory systems
using the Internet and extranets
Cross-functional ERP software to integrate
manufacturing, distribution, finance, HR processes
Customer-accessible e-commerce websites for
order entry, status checking, payment, and service
Customer, product, and order status databases
accessed via intranets and extranets
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Becoming an Agile Company
Global competition
Standardized massmarket products and
services
Niche products
Long-lived
Short-lived
Information poor
Information rich
Exchanged in one-time
transactions
Old Marketplace
Individualized
Exchanged on an
ongoing basis
New Marketplace
2-24
Becoming an Agile Company

Agility is the ability to prosper
– In rapidly changing, continually fragmenting global
markets
– By selling high-quality, high-performance, customerconfigured products and services
– By using Internet technologies

An agile company profits in spite of
– Broad product ranges
– Short model lifetimes
– Individualized products
– Arbitrary lot sizes
2-25
Strategies for Agility
An agile company…
Presents products as solutions to customers’ problems
Cooperates with customers, suppliers, competitors
Brings products to market quickly and cost-effectively
Organizes to thrive on change and uncertainty
Leverages the impact of its people
and the knowledge they possess
Provides incentives for employee
responsibility, adaptability, innovation
2-26
How IT Helps a Company be Agile
2-27
Creating a Virtual Company
A virtual company uses IT to link…
Organizations
Assets
People
Ideas
Inter-enterprise information systems link…
Customers
Competitors
Suppliers
Subcontractors
2-28
A Virtual Company
2-29
Virtual Company Strategies
Basic Business Strategies
Share
information &
risk with
alliance
partners
Link
complimentary
core
competencies
Reduce
concept-to-cash
time through
sharing
Increase
facilities and
market
coverage
Gain access to
new markets &
share market or
customer loyalty
Migrate from
selling products
to selling
solutions
2-30
Building a Knowledge-Creating Company
A knowledge-creating company
or learning organization…
Consistently creates new business knowledge
Disseminates it throughout the company
Builds it into its products and services
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Two Kinds of Knowledge
Explicit Knowledge
Data, documents, and things written
down or stored in computers
Tacit Knowledge
The “how to” knowledge in workers’ minds
Represents some of the most important
information within an organization
A knowledge-creating company makes tacit
knowledge available to others
2-32
Knowledge Management

Successful knowledge
management
– Creates techniques,
technologies, systems,
& rewards for getting
employees to share
what they know
– Makes better use
of accumulated
workplace and
enterprise knowledge
2-33
Knowledge Management Systems (KMS)
Knowledge management systems…
Are a major strategic use
of IT
Manage organizational
learning and know-how
Help knowledge workers
create, organize, and
make available important
knowledge
Make this knowledge
available wherever and
whenever it is needed
2-34
Knowledge Management Systems (KMS)
Knowledge includes…
Processes
Reference works
Best practices
Patents
Procedures
Forecasts
Formulas
Fixes
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Case 3: Wachovia and Others

Trading Securities at the Speed of Light
– Investment companies rely on faster hardware
and processing times to get an advantage over
competitors
– Securities trading is one of the few business
activities where a one-second processing delay
can cost a company big bucks
– Wall Street’s quest for speed is not only putting floor
traders out of work, but opening up space for new
alternative exchanges and e-communications
networks that compete with established stock
markets
2-36
Case Study Questions

What competitive advantages can the companies
in the case derive from faster technology and
co-location of servers with exchanges?
– Which would you say are sustainable, and which
ones are temporary or easily imitable?

Tony Bishop of Wachovia stated that
“Competitive advantage comes from your math,
your workflow, and your processes through your
systems”
– Referring to what you have learned in this chapter,
develop opposing viewpoints as to the role of IT, if
any, in the development of competitive advantage
2-37
Case Study Questions

What companies in industries other than
securities trading could benefit from
technologies that focus on reducing
transaction processing times?
2-38