Chapter 3
Achieving Competitive
Advantage with
Information Systems
3.1
© 2007 by Prentice Hall
Essentials of Business Information Systems
Chapter 3 Achieving Competitive Advantage with Information Systems
Using Information Systems to Achieve Competitive Advantage
Types of Competitive Advantage
There are four ways companies can create or keep
the competitive advantage:
1. Barriers to entry that restrict supply
• create supply monopolies.
2. Demand control
•
3.2
create and control the switching costs
customers would experience if they moved to
another supplier.
© 2007 by Prentice Hall
Essentials of Business Information Systems
Chapter 3 Achieving Competitive Advantage with Information Systems
Using Information Systems to Achieve Competitive Advantage
Types of Competitive Advantage
3. Economies of scale
• keep operating costs low while expanding
sales by increasing the amount of product or
service you provide with the same equipment.
4. Process efficiency
•
improve business processes to make them
more efficient and cheaper.
Some companies use just one of these to maintain a
competitive advantage but most companies will
use a combination of them.
3.3
© 2007 by Prentice Hall
Essentials of Business Information Systems
Chapter 3 Achieving Competitive Advantage with Information Systems
Using Information Systems to Achieve Competitive Advantage
Porter’s Competitive Forces Model
Porter’s competitive
forces model contends
that much of the
success or failure of a
business depends on
its ability to respond to
its external
environment. Figure 31 shows four external
forces that every
business must contend
with at one time or
another.
3.4
© 2007 by Prentice Hall
Essentials of Business Information Systems
Chapter 3 Achieving Competitive Advantage with Information Systems
Using Information Systems to Achieve Competitive Advantage
Porter’s Competitive Forces Model
• Traditional competitors
o always nipping at your heals with new products
and services trying to steal your customers.
• New market entrants
o Can lure customers away with cheaper or better
products and services.
3.5
© 2007 by Prentice Hall
Essentials of Business Information Systems
Chapter 3 Achieving Competitive Advantage with Information Systems
Using Information Systems to Achieve Competitive Advantage
Porter’s Competitive Forces Model
• Substitute products and services
o If your price is too high or the quality of your
products and services is too low.
• Customers
o IT empowers customers with new information
resources that make it easier for them to jump to
your competitors, new market entrants, or
substitute products.
3.6
© 2007 by Prentice Hall
Essentials of Business Information Systems
Chapter 3 Achieving Competitive Advantage with Information Systems
Using Information Systems to Achieve Competitive Advantage
Porter’s Competitive Forces Model
• Suppliers
o number of suppliers used may determine how
easy or difficult your business will have in
controlling the supply chain.
o Too few suppliers and you lose a lot of control.
3.7
© 2007 by Prentice Hall
Essentials of Business Information Systems
Chapter 3 Achieving Competitive Advantage with Information Systems
Using Information Systems to Achieve Competitive Advantage
Porter’s Competitive Forces Model
In Porter’s competitive forces model, the
strategic position of the firm and its strategies
are determined not only by competition with its
traditional direct competitors but also by four
forces in the industry’s environment: new
market entrants, substitute products,
customers, and suppliers.
3.8
Figure 3-1
© 2007 by Prentice Hall
Essentials of Business Information Systems
Chapter 3 Achieving Competitive Advantage with Information Systems
Using Information Systems to Achieve Competitive Advantage
Information System Strategies for Dealing with
Competitive Forces
•
Many companies have found that effective and
efficient information systems allow them to deal with
external forces in one of four ways:
1. Low-cost leadership
2. Product differentiation
3. Focus on market niche
4. Strengthen customer and supplier intimacy
3.9
© 2007 by Prentice Hall
Essentials of Business Information Systems
Chapter 3 Achieving Competitive Advantage with Information Systems
Using Information Systems to Achieve Competitive Advantage
Information System Strategies for Dealing with
Competitive Forces
1. Low-cost leadership
3.10
–
IT can help lower operational costs and lower prices.
–
Makes it difficult for traditional competitors and new
market entrants to match your prices.
–
strategy works best with commodities such as computers or
with household products retailers such as Wal-Mart.
–
Efficient customer response systems provide a company and
its suppliers with an integrated view of customers.
© 2007 by Prentice Hall
Essentials of Business Information Systems
Chapter 3 Achieving Competitive Advantage with Information Systems
Using Information Systems to Achieve Competitive Advantage
Information System Strategies for Dealing with
Competitive Forces
2. Product differentiation
3.11
–
IT helps to create products or services that
are so different that they create barriers
for the competition.
–
Dell Computer Corporation vs. its
competitors success
© 2007 by Prentice Hall
Essentials of Business Information Systems
Chapter 3 Achieving Competitive Advantage with Information Systems
Using Information Systems to Achieve Competitive Advantage
Information System Strategies for Dealing with
Competitive Forces
3. Focus on market niche
3.12
–
In a fiercely competitive market, a firm can choose to focus on a
very narrow segment of the market rather than a broad general
audience.
–
Using data mining techniques a firm can gather very specific
information about its customers and create a focused
differentiation business strategy to market directly to those
consumers.
–
Apple Computer uses focused differentiation to help sell its
computers to a narrow target market of graphic designers and
educators rather than the general population of computer users.
© 2007 by Prentice Hall
Essentials of Business Information Systems
Chapter 3 Achieving Competitive Advantage with Information Systems
Using Information Systems to Achieve Competitive Advantage
Information System Strategies for Dealing with
Competitive Forces
4. Strengthen customer and supplier
intimacy
–
Supply chain management (SCM) systems increase supplier
intimacy while customer relationship management systems
increase customer intimacy.
–
Customer relationship management systems allow companies to
learn details about customers that give them the competitive
advantage over traditional competitors and new market entrants.
3.13
© 2007 by Prentice Hall
Essentials of Business Information Systems
Chapter 3 Achieving Competitive Advantage with Information Systems
Using Information Systems to Achieve Competitive Advantage
The Internet’s Impact on Competitive Advantage
3.14
© 2007 by Prentice Hall
Essentials of Business Information Systems
Chapter 3 Achieving Competitive Advantage with Information Systems
Using Information Systems to Achieve Competitive Advantage
The Business Value Chain Model
•
Highlights specific activities in a business where
competitive strategies can best be applied and
where information systems are likely to have a
strategic impact
1. Primary activities
o
3.15
the activities that go into getting the
products made, from procuring raw materials
to actual production plus activities that get
the products to the factory and store
shelves.
© 2007 by Prentice Hall
Essentials of Business Information Systems
Chapter 3 Achieving Competitive Advantage with Information Systems
Using Information Systems to Achieve Competitive Advantage
The Business Value Chain Model
2. Support activities
o support the primary functions of production,
shipping, and sales and marketing.
o E.g., human resources, accounting, and finance,
etc
•
Benchmarking
o
•
3.16
provides a way for businesses to determine how they
stand up against their competitors within the same
industry.
Best practices
© 2007 by Prentice Hall
Essentials of Business Information Systems
Chapter 3 Achieving Competitive Advantage with Information Systems
Using Information Systems to Achieve Competitive Advantage
The Value Chain Model
This figure provides examples of systems for
both primary and support activities of a firm and
of its value partners that would add a margin of
value to a firm’s products or services.
3.17
Figure 3-2
© 2007 by Prentice Hall
Essentials of Business Information Systems
Chapter 3 Achieving Competitive Advantage with Information Systems
Using Information Systems to Achieve Competitive Advantage
Extending the Value Chain: The Value Web
More and more companies are incorporating the
Internet in their business strategies through the use
of value webs.
• A firm’s value chain is linked to the value chains of
its suppliers, distributors, and customers
• A value web is a collection of independent firms
that use information technology to coordinate their
value chains to produce a product collectively
• Value webs are flexible and adapt to changes in
supply and demand
3.18
© 2007 by Prentice Hall
Essentials of Business Information Systems
Chapter 3 Achieving Competitive Advantage with Information Systems
Using Information Systems to Achieve Competitive Advantage
The Value Web
The value web is a networked system that can
synchronize the value chains of business
partners within an industry to respond rapidly to
changes in supply and demand.
3.19
Figure 3-3
© 2007 by Prentice Hall
Essentials of Business Information Systems
Chapter 3 Achieving Competitive Advantage with Information Systems
Using Information Systems to Achieve Competitive Advantage
Synergies, Core Competencies, and
Network-Based Strategies
3.20
• Very seldom will you find a business that provides
all of its own services, supplies, and processes
throughout the entire chain.
• It isn’t practical or efficient to do so.
• Most businesses rely on partnerships with other
companies to produce goods and services.
• The most successful companies will determine the
best synergies, core competencies and networkbased strategies to reduce costs, improve products
and services, and increase profits.
© 2007 by Prentice Hall
Essentials of Business Information Systems
Chapter 3 Achieving Competitive Advantage with Information Systems
Using Information Systems to Achieve Competitive Advantage
Synergies, Core Competencies, and
Network-Based Strategies
• Synergies
• Information systems tie together disparate units so
they act as a whole
• Enhancing core competencies
• Network-based strategies
• Network economics
• Virtual company
3.21
© 2007 by Prentice Hall
Essentials of Business Information Systems
Chapter 3 Achieving Competitive Advantage with Information Systems
Competing on a Global Scale
The world just keeps getting smaller and smaller.
No company can afford to ignore foreign markets
or the impact of foreign competition on the
domestic business environment.
Globalization Opportunities
• Firms that sell products on a global scale reach a
much larger market
• Firms that produce on a global scale achieve
extraordinary savings in labor costs
• The Internet and globalization
3.22
© 2007 by Prentice Hall
Essentials of Business Information Systems
Chapter 3 Achieving Competitive Advantage with Information Systems
Competing on a Global Scale
Global Business and System Strategies
• Scale economies and resource cost reduction
• Higher utilization rates, fixed capital costs, and
lower cost per unit of production
• Speeding costs to market
• Transnational business organizations
3.23
© 2007 by Prentice Hall
Essentials of Business Information Systems
Chapter 3 Achieving Competitive Advantage with Information Systems
Competing on Quality and Design
What Is Quality?
• For the producer: conformance to specifications
and absence of variation from specs
• For the customer: physical quality, quality of
service, psychological quality
• Total quality management (TCM)
• Six sigma
3.24
© 2007 by Prentice Hall
Essentials of Business Information Systems
Chapter 3 Achieving Competitive Advantage with Information Systems
Competing on Quality and Design
How Information Systems Improve Quality
• Simplify the product and the production process
• Benchmarking
• Use customer demand to improve products and
services
• Reduce cycle time
• Improve design quality and precision
• Improve production precision and tighten
production tolerances
3.25
© 2007 by Prentice Hall
Essentials of Business Information Systems
Chapter 3 Achieving Competitive Advantage with Information Systems
Competing on Business Processes
Business Process Reengineering
• Tasks are streamlined to eliminate repetitive and
redundant work
• Mortgage banks have been great beneficiaries of
BPR, achieving remarkable leaps forward in
efficiency
• Workflow management facilitates streamlining
tasks
3.26
© 2007 by Prentice Hall
Essentials of Business Information Systems
Chapter 3 Achieving Competitive Advantage with Information Systems
Competing on Business Processes
Steps in Effective Reengineering
• Understanding what business processes need
improvement
• Understanding how the improvements will help the
firm execute its strategy
• Understanding and measuring the performance of
existing processes
• Managing change
3.27
© 2007 by Prentice Hall