Ch2

Using Information Technology for Strategic Advantage • Strategic Uses Of Information Technology • Major competitive differentiator • Develop a focus on the customer – Customer value • • • •

Best value Understand customer preferences Track market trends Supply products, services, & information anytime, anywhere • Tailored customer service



Competitive Strategy Concepts •

strategic advantages over the competitive forces in the global marketplace Strategic Use of IS involves using IT to

– develop products – services Strategic Information – capabilities Systems

support of competitive position and strategies of an enterprise

Competitive

Forces

Strategies to counter Competitive Competitive Strategies Alliance Innovation

Differentiatio n Cost Leadership

Competitive Forces

Threat of Substitutes

Threat of New Entrants

Rivalry of Competitors Bargaining Power of Suppliers Bargaining Power of Customers

Growth

Other Strategies

Introduction 

to Strategic Applications and

Issues in IT Level 1: Strategy

  

IT is viewed as a competitive differentiator massive amounts of IT are supporting transaction processing, decision making, collaboration, and key business processes business processes are modified to reduce time and costs and improve quality and flexibility

Level 2: Offensive   

IT is viewed as a point of leverage rather than as a competitive differentiator networks of PCs and servers are proliferating in the organization organization is committed to capturing IT benefits

Level 3: Defensive  

IT growth is controlled to less than rate of business growth IT investments follow general industry behaviour

Level 4: Cost-Justified    

tight control is maintained over IT technology platforms and applications are aging ROI evaluations are done only at the project level no overall technology deployment plan exists

Level 5: Controlled  

IT is viewed as expense management is unwilling to invest in computing

How a business may view and employ IT

Breaking Business Barriers

Time Barriers

Geographic Barriers

Breaking Business Barriers with IT

Cost Barriers

Structural Barriers

Primary Business Processes

Support Processes



The Value Chain and Strategic IS Administrative Coordination and Support Services SIS: Collaborative Work Systems Human Resources Management SIS: Employee Skills Database Systems Technology Development SIS: Computer-Aided Engineering and Design Procurement of Resources SIS: Electronic Data Interchange with Suppliers Inbound Logistics SIS: Automate d Just-inTime Warehousi ng

Operations SIS: ComputerAided Flexible Manufactur ing.

Outbound Logistics SIS: Online Point-ofSale and Order Processing

Competitive Advantage

Marketing and Sales

Customer Service

SIS: Interactive Targeted Marketing

SIS: Help Desk Expert System

Value chain of a firm



Reengineering Business Processes Business Improvement

Business Reengineering

Definition



Incrementally improving existing processes



radically redesigning business processes

Target



Any process



Strategic business processes

Primary Enablers



IT and work simplifications



IT and organization redesign

Potential Payback



10 to 50% improvements



10-fold improvements

What Changes?



same jobs, just more efficient



big job cuts, new jobs, major job redesign

Risk of Failure and Level of Description



low



high

How business process reengineering differs from business improvement

Competitive Strategies & the Role of IT (continued) • Differentiation – Create a positive difference between your products/services & the competition. – May allow you to reduce a competitor’s differentiation advantage. - May allow you to serve a niche market. Cost Leadership - Become a low cost producer of product and services in the industry - Also, find ways to help its suppliers or customers reduce their cost or to increase the cost of their competitor • Innovation – New ways of doing business • Unique products or services • New ways to better serve customers • Reduce time to market • New distribution models

Competitive Strategies & the Role of IT (continued) • Growth – Expand production capacity – Expand into global markets – Diversify – Integrate into related products and services. • Alliance – Broaden your base of support • New linkages – Mergers, acquisitions, joint ventures, “virtual companies” – Marketing, manufacturing, or distribution agreements.

Competitive Strategies & the Role of IT (continued) • Other Competitive Strategies – Locking in customers or suppliers • Build value into your relationship • Ex: Wal-Mart extended networks to customers and suppliers in order to build innovative relationships that would lock in their business – Creating switching costs Ex: SABRE ( American Airlines) and APOLLO ( United Airlines) used by travel agents for computerized airline reservation * a strategic weapon for providers to have a major competitive advantage –source of revenue and a new line of information products * extended these systems on the internet

Competitive business strategy Raising barriers to entry: * to delay or discourage competitors to enter a market Ex: Merrill Lynch- cash management account – made large investments in IT, along with a ground breaking alliance with BankOne they became the first securities brokers to offer a credit line, checking accounts, visa credit cards and automatic investment in a money market fund, all in one account– gave them major competitive advantage for several years before their rivals could develop the IT capability to offer similar services on their own Leveraging a strategic IT platform: - investing in IT enables a firm to build a strategic IT platform that allows it to take advantage of strategic opportunities. In many cases this results when a company invests in advanced computer based IS to improve their efficiency of its own business processes. Armed with this technology platform the firm can leverage investments in IT by developing new products and services that would not be possible without a strong IT capability

Breaking Business Barriers (contd) * Breaking time barriers: Producers who deliver their products and services in real time relative to their competitors will have a strategic advantage Ex: Toyoto Motor Corp. – use computers and telecom networks for interval reductions and Just In Time operations resulting in a significant strategic advantage In early 1980s Toyoto took 2 days to manufacture a car and took 25 to 30 days to process customer’s order for a car – it was costing more to process than to produce a car and now it takes just 2 days to deliver the car * Breaking geographic barriers: Companies operate from several locations and do business at regional, national and global markets Internet, Intranets, Extranets and other telecom and computing technologies make it possible to distribute key business activities to where they are most needed, where they are best performed, or where they best support the competitive advantage of a business

The Value Chain • Views a firm as a series, chain, or network of activities that add value to its products and services. – Improved administrative coordination – Training – Joint design of products and processes – Improved procurement processes – JIT inventory – Order processing systems

Strategic Uses of IT • Business Process Reengineering (BPR) – Rethinking & redesign of business processes – Combines innovation and process improvement – There are risks involved. – Success factors • Organizational redesign • Process teams and case managers • Information technology • Improve business quality – Total Quality Management (TQM) • Quality from customer’s perspective • Meeting or exceeding customer expectations • Commitment to: – Higher quality – Quicker response – Greater flexibility – Lower cost

Strategic Uses of IT (continued) • Becoming agile – Four basic strategies • Customers’ perception of product/service as solution to individual problem • Cooperate with customers, suppliers, other companies (including competitors) • Thrive on change and uncertainty • Leverage impact of people and people’s knowledge

The virtual company Uses IT to link people, assets, and ideas Forms virtual workgroups and alliances with business partners Inter-organizational information systems Share infrastructure & risk with alliance partners Link complementary core competencies Reduce concept-to-cash time through sharing

an Agile Competitor

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e nc ha ss en ne to e e tiv at ti er pe op om c

cu to sto th m ei er r s pr w ob ith l e so m l s ut

Co

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ns

 Becoming 

The Fundamental Strategies of Agile Competition iz an e t d om un ce ast rt er ai c nt ha y n

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The four fundamental strategies of agile competition

The Virtual Company (continued) – Strategies (continued) • Increase facilities and market coverage • Gain access to new markets and share market or customer loyalty • Migrate from selling products to selling solutions

Learning Organizations Exploit two kinds of knowledge • Explicit • Tacit

 Virtual 

Company Strategies

1 Adaptability environment

Able to adapt to a diverse, fast-changing business

2 Opportunism Created, operated, and dissolved to exploit business opportunities when they appear 3 Excellence

Possess all-star, world-class excellence in the core competencies that are needed

4 Technology required

Provide world-class information technology and other technologies in all customers solutions

5 Borderless and customer 6 Trust-Based

Easily and transparently synthesize the competencies resources of business partners into integrated

Members are trustworthy and display mutual trust in solutions their business relationships

Six basic characteristics of successful virtual companies

 Strategic 

Information Management

Changes in the Competitive Situation 

Internationalization of Markets



Innovative Dynamics with Products and Process



Buyer Markets



Globalization of Purchasing



Demographic Developments



Resources Decreases

Innovative Potential of I & C Technology 

New Products



Process Innovation



New Forms of Cooperation and Division of Labour



Virtual Firms

Changes in the Competitive Situation 

Attitude toward Environment



Age Demographics of Employees



Buyer Behaviour



Quality Demands on the Work Place

Challenges for the Firm

Firms and Markets 

Dissolution of Hierarchies



Symbioses and Cooperation



Electronic Markets



Virtual Firms

Potential for innovation, competitive markets and innovative strategies Source: Wigand / Picot / Reichwald, 1997, p. 3



Strategic Information Management •

Informatics concerns to all Horizons of Management Strategic Management



Development of Strategies for Companies

Tactical Management



Management of Achievements and Costs

Operative Management



Steering of Settlement of Businesses



Project Management



Settlement of Businesses



Realization of Projects

Operative Settlement

Horizons of management Source: Adler, 1988

high

Strategic Information Management Efficient Use of IP essential for Efficiency of Companies

IP Leadership essential for strategic Position

(Factory)

(Weapon)

Use of IP not decisive

low

Strategic Meaning of existing mono-functional IP Systems



(Assistanc e) low

Strong Influence of IP to Conditions of Competitio (Breakthrou n to gh) be expected high

Strategic Meaning of an Integration of IP Systems

The role of information processing depends on its current and future strategic meaning Source: ADL

Strategic   

Information Management

Use of Information Processing Provision of new products and/or services

Strategic Meaning

 



Improvement of coordination of achievements

   



Improvement of market sound Settlement

  





Improvement of operative efficiency

 

Use of new technical systems

 

Strategic Weapon Banks Publishers

Factory

Breakthrough

 

Data Bases Assurances



Trades

Banks Airlines Trades Transport Sector Banks Airlines Public Admin.

 

Assurances Decentralize d Companies of the Producing Trades Industry Assurances Services



Medium Size Enterprises



Medium Size Enterprises

Car Industry Mech. Engineering Car Industry Consumers’ Electronics



Facility Industry Chem. Metal Industry Processing Industry



Services

  

 

Trade Dependencies of the Strategic Meaning of Information Processing Source: ADL



Strategic Information Management Corporate Strategic Plan Link business and IT strategy Performance Evaluation

Business Unit Strategic Plans

Assess business impact

Formulate IT strategic plans and goals

Check that goals have been met Decide compensation

Corporate Operating Plans Identify corporate or crossbusiness unit projects Prioritze and finalize list of project

Ensure alignment with business units plans

Business Unit Operating Plans Determine IT budget Identify project ideas Develop business cases Prioritize Projects Reconcile proposed funding levels with business unit budget targets Integration of IT and business planning

Learning Organizations (continued) • Knowledge Management

Learning Organizations (continued) • Knowledge management systems – Help create, organize, and share business knowledge wherever and whenever needed within the organization