Introduction to Information

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Introduction to Information Systems Lecture
02 Competing with IT How can a business use IT to
compete? Jaeki Song
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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 give competitive advantages
  to a business.
• 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.

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Todays Business Environment

• Increased globalization
• Increased competitive pressure
• Frequent mergers
• Rapidly changing technology
• Evolving patterns of consumer demand

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Strategy

• the art of the general
• What its business is, its objectives, how it
  defines and measures results, who its customers
  are, and what its customers value
• Converts business into action by enabling an
  organization to achieve its goals in an
  increasingly unpredictable business environment
• Strategy is about making choices that include
• The selection of business goals
• The choice of products and services offer
• The design and configuration of policies that
  determine how the firm positions itself to
  compete in its markets
• The appropriate level of scope and diversity
• The design of organization structure,
  administrative systems, and policies used to
  define and coordinate work

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Formulation of Strategy
Analysis
Implementation
Vision (where)
Objectives With plans
Strategy (how)
Mission (What)
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Vision

• Creation of a vision
• Where the company wants to go
• What the company aspires to be
• To be clear, imaginable/compelling,
  exciting/desirable
• Focused Is clear enough to provide guidance in
  decision making
• Feasible comprises realistic
• Flexible
• Communicable
• Measurable Stake holders will clearly see that
  they have attained the goal

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Strategy

• How the vision will be accomplished over
  specified time period
• Benchmarks to check strategy effectiveness
• Aligned with company mission and core values
• Provides architectural bridge between mission and
  vision

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Mission

• What are we?
• Mission statement
• Reasons the IT function exists
• Concise statement of what business the group is
  in
• Purpose and function of IT
• Review to identify for themes and ideas
• Identify core values

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Competitive Forces
New Entrants
Threat of ..
Industry Competitors
Bargaining Power of Channel/Buyers
Bargaining Power of Channel/Suppliers
Customers
Suppliers
Rivalry Among Existing Firms
Threat of ..
Substitute Products
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• Rivalry Determinants
• Industry growth rate
• Intermittent over-capacity
• Fixed costs/value added
• Product differences
• Brand identity
• Exit barriers .. sunk costs
• Informational complexity
• Switching costs
• Diversity of competition

• Determinants of entry Barriers
• Economies of scale
• Brand identity
• Proprietary product differences
• Switching costs
• Absolute cost advantages (proprietary
• learning curve, low-cost prod design, etc.)
• Government policies
• Expected retaliation
• Capital requirements
• Access to distribution channels

New Entrants
Threat of ..
Industry Competitors
Suppliers
Bargaining Power
Customers
Bargaining Power
Rivalry Among Existing Firms

• Determinants of Customer Power
• Buyer Vs. Firm concentration
• Dependence .. Buyer Volume
• Relative switching costs
• Buyer information
• Substitute products availability

• Determinants of Supplier Power
• Supplier concentration
• Importance of Volume to supplier
• Relative switching costs
• Impact of inputs on cost or differentiation
• Costs relative to total industry-purchases
• Differentiation of inputs
• Substitute inputs availability

Threat of ..
Substitute Products

• Determinants of Threat of Substitution
• Relative price/performance of substitutes
• Buyer propensity to substitute
• Switching costs

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Competitive Forces

• If a business wants to succeed must develop
  strategies to counter these forces
• Rivalry of competitors within its industry
• Threat of new entrants into an industry and its
  markets
• Threat posed by substitute products which might
  capture market share
• Bargaining power of customers
• Bargaining power of suppliers

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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
  buyer sets the price
• Differentiation Strategy
• Develop ways to differentiate a firms products
  from its competitors
• Can focus on particular segment or niche of
  market
• Example, Moen uses online customer design

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Competitive Strategies (cont.)

• Innovation Strategy
• Find new ways of doing business
• Unique products or services
• Or unique markets
• Radical changes to business processes to alter
  the fundamental structure of an industry
• Example, Amazon uses online full-service customer
  systems
• Growth Strategy
• Expand companys capacity to produce
• Expand into global markets
• Diversify into new products or services
• Example, Wal-Mart uses merchandise ordering by
  global satellite tracking

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Competitive strategies (cont.)

• 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

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Other competitive strategies

• Lock in customers and suppliers
• And lock out competitors
• Deter them from switching to competitors
• Build in switching costs
• Make customers and suppliers dependent on the use
  of innovative IS
• Barriers to entry
• Discourage or delay other companies from entering
  market
• Increase the technology or investment needed to
  enter
• Include IT components in products
• Makes substituting competing products more
  difficult
• Leverage investment in IT
• Develop new products or services not possible
  without IT

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Using IT for these strategies
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Strategic IT

• Technology is no longer an afterthought in
  forming business strategy, but the actual cause
  and driver.
• IT can change the way businesses compete.
• A strategic information system is
• Any kind of 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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Strategic IT

• IT managers need to know
• Knowledgeable about new technologies
• Privy to tactical and strategic plans
• Be present in corporate strategy discussions
• Understand technologys strengths and weaknesses

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IT Strategy

• Set of decisions made by IT and senior management
• Leads to develop technology infrastructures and
  human competencies
• Relationship of technology choices to business
  choices
• Technology scope
• The important information applications and
  technologies
• Systematic competencies
• Those capabilities that distinguishes the IT
  services
• IT governance
• How the authority for resources, risk, conflict
  resolutions, and responsibility for IT is hared
  among business partners, IT management, and
  service providers

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IT Infrastructure and Processes

• Architecture
• The technology priorities, policies, and choices
  that allow applications, S/W, H/W, and data
  management to be integrated into a cohesive
  platform
• Processes
• Those practices and activities carried out to
  develop and maintain applications and manage IT
  infrastructure
• Skills
• IT human resource considerations

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Planning IT Strategy

• Sequence of activities that transforms current
  alignment state to future alignment state to
  enable sustainable CA
• Actively involve IT ( business) management in
  development of vision and strategies
• Strengthen degree of strategic alignment

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Customer-focused business

• What is the business value in being
  customer-focused?
• Keep customers loyal
• Anticipate their future needs
• Respond to customer concerns
• Provide top-quality customer service
• Focus on customer value
• Quality not price has become primary determinant
  of value

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How can we provide customer value?

• Track individual preferences
• Keep up with market trends
• Supply products, services and information
  anytime, anywhere
• Provide customer services tailored to individual
  needs
• Use Customer Relationship Management (CRM)
  systems to focus on customer

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Value Chain

• View the firm as a chain of basic activities that
  add value to its products and services
• Activities are either
• Primary processes directly related 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 can best be applied to add
  the most value

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Porters Value Chain Model
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Business Process Reengineering

• Called BPR or Reengineering
• Fundamental rethinking and radical redesign
• Of business processes
• To achieve improvements in cost, quality, speed
  and service
• Potential payback high
• Risk of failure is also high

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Agility

• Agility is the ability of a company to prosper
• In a rapidly changing, continually fragmenting
• Global market for high-quality, high-performance,
  customer-configured products and services
• An agile company can make a profit with
• Broad product ranges
• Short model lifetimes
• Mass customization
• Individual products in large volumes

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Four strategies for agility

• An agile company
• Provides products as solutions to their
  customers individual problems
• Cooperates with customers, suppliers and
  competitors to bring products to market as
  quickly and cost-effectively as possible
• Organizes so that it thrives on change and
  uncertainty
• Leverages the impact of its people and the
  knowledge they possess

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Virtual Company

• A virtual company uses IT to link
• People,
• Organizations,
• Assets,
• And ideas
• Creates interenterprise information systems
• to link customers, suppliers, subcontractors and
  competitors

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Knowledge Creation

• Knowledge-creating company or learning
  organization
• Consistently creates new business knowledge
• Disseminates it throughout the company
• And builds in the new knowledge into its products
  and services
• Explicit knowledge
• Data, documents and things written down or stored
  on computers
• Tacit knowledge
• The how-to knowledge which reside in workers
  minds
• A knowledge-creating company makes such tacit
  knowledge available to others

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Knowledge issues

• What is the problem with organizational knowledge
  being tacit?
• Why are incentives to share this knowledge
  needed?

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Knowledge management techniques
Source Adapted from Marc Rosenberg, e-Learning
Strategies for Delivering Knowledge in the
Digital Age (New York McGraw-Hill, 2001), p.70.
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Knowledge management systems (KMS)

• KMS manage organizational learning and business
  know-how
• Goal
• Help knowledge workers to create, organize, and
  make available knowledge
• Whenever and wherever its needed in an
  organization