Effects of IT on Strategy and Competition

1
Effects of IT on Strategy and Competition

• Background
• Forces that shape strategy
• Search for opportunity
• Analyzing the value chain for IT opportunities
• The risks of information systems success
• New point of view

2
Background

• Three examples
• Distributor
• Airline
• Aerospace
• Observations
• IT strategy planning must be continuous, one shot
  will not work long term
• IT moving from the back office

3
Forces That Shape Strategy
Potentialnew entrants
Bargaining powerof suppliers
Strategic businessunit
Bargaining power ofbuyers
Threat of substituteproducts or services
4
Elements of Industry Structure

• Entry Barriers
• Economies of scale
• Brand
• Cost advantage
• Supplier Power
• Switching costs
• Presence of substitutes
• Threat of forward or backward integration

5
Elements of Industry Structure

• Rivalry Determination
• Product differences
• Switching costs
• Diversity of competitors
• Industry growth
• Buyer Power
• Buyer volume
• Buyer information
• Price sensitivity

6
Impact of Competitive Forces
7
Generic Strategies related to Competitive
Advantage and Scope
8
Search for Opportunity

• 5 key questions to guide assessment of IT impact
  on strategy?
• Can IT build barriers to entry?
• Can IT build in switching costs?
• Can IT change the basis of competition?
• Can IT change the balance of power in supplier
  relationships?
• Can IT generate new products?

9
Can IT build barriers to entry?

• Customer base is an asset
• Keeping customers hooked
• Sales force effectiveness
• Knowledge barriers can be potent

10
Can IT build in switching costs?

• Embedding ones products and services into those
  of industry participants
• Customers
• Suppliers
• Examples
• Equipment manufacturer remote sensing
• MCI American Airlines

11
Can IT change the basis of competition?

• Cost-reductions due to virtual environments
• eBay
• Amazon
• Home Banking

12
Can IT change the balance of power in supplier
relationships?

• Virtual supplier marketplaces
• Linking manufacturers and suppliers
• JIT Inventory
• Power balance redistributed

13
Can IT generate new products?

• IT used to combine services and products provide
  new offerings around them
• Supermarket data scrubbing
• Information content of products increasing
  markedly
• Cars
• Sewing machines

14
Analyzing the Value Chain for IT Opportunities

• Inbound logistics
• Operations and prod definition
• Outbound logistics
• Marketing and Sales
• After-sales service
• Corporate Infrastructure
• HR
• Technology Development
• Procurement

15
Inbound logistics

• JIT Inventory and expedited procurement
• Linkages to suppliers

16
Operations and prod definition

• Computer controlled manufacturing
• Instant on-line access by customers
• Insurance
• Financial Services

17
Outbound logistics

• Delivering the product or service to the customer
• Web-enabled
• Self-service tracking of orders and shipments
• Rail / Road Carriers

18
Marketing and Sales

• Previously neglected by IT
• Now areas of high impact
• On-line ordering
• Instant pricing info
• Product customization
• Sales tracking and marketing tie ins
• Web
• Supermarkets

19
After-sales service

• Customer self-service capabilities
• Remote servicing
• Knowledge based servicing

20
Corporate Infrastructure

• More efficient tracking and management control
• Virtual operations opportunities
• Decentralization
• Telecommuting

21
HR

• Better management tools
• Employee access to data, company guidelines, etc.

22
Technology Development

• Modeling and simulation systems
• CAD/CAM/CASE

23
Procurement

• Virtual marketplaces
• Access to supplier data (specs) and inventory
  levels

24
The Risks of IS Success

• Systems that change basis of competition to a
  companys disadvantage
• Systems that lower entry barriers
• Litigation / Regulation
• Systems that increase customer or suppliers power
• Bad timing
• Investments that turn out to be indefensible,
  fail to produce lasting results
• Inadequate understanding of buying dynamics
  across market segments
• Cultural lag and perceived transfer of power

25
Systems that change basis of competition to a
companys disadvantage

• Continued innovation is necessary
• Competitor takes your idea and goes one better
• Appliances manufacturer

26
Systems that lower entry barriers

• Making an industry more attractive may motivate
  others to enter
• E-Commerce, early players paved the road for
  later entrants
• Monetizing development efforts by selling IT
  systems.

27
Litigation / Regulation

• SABRE System
• Information monopoly
• Industry consortiums and virtual vertical
  marketplaces
• Microsoft

28
Systems that increase customer or suppliers power

• Internet / Web-buying
• Fax example
• Inevitability

29
Bad timing

• Too early
• Home banking in 1980s
• Smart cards in 1990s
• Wireless data service Today
• Too late
• Satellite telephones
• Regional airlines

30
Investments that turn out to be indefensible,
fail to produce lasting results

• Easy to replicate by competitors once they see
  how to do it
• Does not contain intellectual property that can
  be protected, or worse places intellectual
  property at risk
• Often due to the wrong model and plans to morph
  to a better one
• Early Internet Market Share Models

31
Inadequate understanding of buying dynamics
across market segments

• Applying concepts that were successful in one
  market niche to another.
• Vertical virtual marketplaces
• Low cost airlines

32
Cultural lag and perceived transfer of power

• Requirements for customers to purchase expensive
  technology
• Home banking 1980s
• Streaming videos, late 1990s
• Technology may be solid but user must appreciate
  potential benefits

33
Assessing Competitor Risk

• Predicting in detail the industry-level changes
  that may be brought about by development and
  implementation of particular information
  technologies
• Will customer really use it?
• Home banking
• Assessing the potential impact of these changes
  on the company
• Are we ready?

34
New Point of View

• Planning issues
• Confidentiality and competition
• IT-Management partnership

35
Planning issues

• End products of planning must communicate the
  true competitive impact of expenditures involved.
• Much effort is devoted to maintenance of current
  and legacy systems
• RD must keep up on technology development to
  have a good understanding of potential impact
• Ranking alternative on financial basis (ROI)

36
Confidentiality and competition

• Strategic IT plans now considered to be much more
  proprietary than before
• Loosing good people

37
IT-Management partnership

• Managers must work closely with specialists
• IT Specialists
• Business Management
• General Management