Chapter 2 Competing with
Information Technology
Learning Objectives
Identify several basic competitive strategies and explain
how they use information technologies to confront the
competitive forces faced by a business.
Identify several strategic uses of Internet Technologies
and give examples of how they can help a business gain
competitive advantage.
Give examples of how business process
Identify the business value
Explain how knowledge
reengineering frequently of using Internet
management systems can
involves the strategic use technologies to become
help a business gain
of Internet technologies. an agile competitor or
strategic advantages.
form a virtual company.
Chapter 2 Competing with Information
Technology
Strategic Information Technology
Business Information Technology can change the way
businesses compete
Vital competitive network as means organizational
renewal to help the company strategies and business
process that enable reengineering, rethink or reinvent.
A strategic information system is any
information system that uses IT to help an
organization…
Gain a competitive advantage
Reduce a competitive disadvantage.
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Chapter 2 Competing with Information
Technology
Competitive Forces
To succeed, a business must develop strategies to
counter these forces…
Rivalry of competitors within its industry
New entrants into an industry and its markets
Substitute products that may capture market
share
Bargaining power of customers
Bargaining power of suppliers
Chapter 2 Competing with Information
Technology
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 the
buyer sets the price
Differentiation Strategy
Differentiate a firm’s products from its
competitors’
Focus on a particular segment of market
Example: Hammad uses online customer
design
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Chapter 2 Competing with Information
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Competitive Strategies (cont’d)
Innovation Strategy
Unique products, services, or markets
Radical changes to business processes
Example: Amazon’s online, full-service
customer systems
Growth Strategy
Expand company’s capacity to produce
Expand into global markets
Diversify into new products or services
Example: Wal-Mart’s merchandise 6
ordering via global satellite tracking
Chapter 2 Competing with Information
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Competitive Strategies (cont’d)
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
Chapter 2 Competing with Information
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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 of competitive strategy
Not everything innovative serves to differentiate
one organization from another
Likewise, not everything that differentiates
organizations is necessarily innovative
Chapter 2 Competing with Information
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Ways to Implement Basic Strategies
Chapter 2 Competing with Information
Technology
Other Competitive Strategies
Lock in Customers and Suppliers
Make customers and suppliers dependent on the use of
innovative IS
Discourage or delay other companies from entering the
market
Increase the technology or investment needed to enter
Build Strategic IT Capabilities
Take advantage of strategic opportunities when they arise
Improve efficiency of business practices
Leverage Investment in IT
Develop products and service that would not be possible
without a strong IT capability
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Chapter 2 Competing with Information
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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 the primary
determinant of value
Consistently 11
Chapter 2 Competing with Information
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Providing Customer Value
Companies that consistently offer the best value from
the customer’s perspective…
Track individual preferences
Keep up with market trends
Supply products, services, and information
anytime, anywhere
Use Customer Relationship Management
(CRM) systems to focus on the customer
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Building Customer Value Through the
Internet
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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 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 will add the most value
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Chapter 2 Competing with Information
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Strategic Uses of IT
A company that emphasizes strategic
business use of IT would use it to gain a
competitive differentiation
Products
Services
Capabilities
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Chapter 2 Competing with Information
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Reengineering Business Processes
Called BRP or simply Reengineering
Fundamental rethinking and radical redesign of
business processes
Seeks to achieve 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 16
managers
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BPR Versus Business Improvement
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Chapter 2 Competing with Information
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The Role of IT
IT plays a major role in reengineering most
business processes
Can substantially increase process
efficiencies
Improves communication
Facilitates collaboration
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A Cross-Functional Process
Many processes are reengineered
with…
Enterprise resource planning
software
Web-enabled electronic business
and commerce systems
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Chapter 2 Competing with Information
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Reengineering Order Management
IT that supports this 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, and human
resource 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 20
Chapter 2 Competing with Information
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Becoming an Agile Company
Agility is the ability to grow
In rapidly changing, continually fragmenting
global markets
By selling high-quality, high-performance,
customer-configured products and services
By using Internet technologies
An agile company profits in spite of
Broad product ranges
Short model lifetimes
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Individualized products
Chapter 2 Competing with Information
Arbitrary lot sizes Technology
Strategies for Agility
An agile company…
Presents products as solutions to customers’
problems
Cooperates with customers, suppliers and
competitors
Brings products to market as quickly and cost-
effectively as possible
Organizes to thrive on change and uncertainty
Leverages the impact of its people and the
knowledge they possess 22
Chapter 2 Competing with Information
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How IT Helps a Company be Agile
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Chapter 2 Competing with Information
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Creating a Virtual Company
A virtual company uses IT to link…
People
Organizations
Assets
Ideas
Inter-enterprise information systems link…
Customers
Suppliers
Subcontractors
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Competitors
Chapter 2 Competing with Information
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A Virtual Company
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Chapter 2 Competing with Information
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Virtual Company Strategies
Basic business strategies
Share information and 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 and share market
or customer loyalty
Migrate from selling products to selling solutions
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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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Chapter 2 Competing with Information
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Two Kinds of Knowledge
ExplicitKnowledge
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
such tacit knowledge available to others 28
Chapter 2 Competing with Information
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Knowledge Management
Successfulknowledge management
Creates techniques, technologies, systems,
and rewards for getting employees to
share what they know
Makes better use of accumulated workplace
and enterprise knowledge
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Knowledge Management Techniques
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Chapter 2 Competing with Information
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Knowledge Management Systems
Knowledge management systems (KMS)
A major strategic use of IT
Manages organizational learning and know-how
Helps knowledge workers create, organize, and
make available important knowledge
Makes this knowledge available wherever and
whenever it is needed
Knowledge includes
Processes, procedures, patents, reference
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works, formulas, best practices, forecasts, and
fixes
Chapter 2 Competing with Information
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