Strategic Management of Information Technology

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					          Lecture 2

    Competing with
Information Technology
  Why Study Strategic Management of
       Information Technology?


                                      1
     This lecture is based on…

   Chapter 2 “Competing with Technology”
   James A. O'Brien and George Marakas.
   Book Title: Management Information
    Systems (ISBN: 13 9780073323091)
   A full electronic lecture by the authors
    can be found at:
http://www.scribd.com/doc/4545728/Competing-with-
               Information-Technology
                                                    2
    Learning Objectives

   Identify several basic competitive
    strategies and explain how they can 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 give competitive
    advantages to a business.
                                               3
    Learning Objectives
   Give examples of how business process
    reengineering frequently involves the strategic
    use of Internet technologies.
   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.


                                                      4
     Why Study 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.




                                              5
    Strategic View of Information
    Systems
   Information systems are vital competitive
    networks.
   Information systems are a means of
    organizational renewal.
   IS are a necessary investment in technologies
    that help a company adopt strategies and
    business processes that enable it to reengineer
    or reinvent itself in order to survive and succeed
    in today’s dynamic business environment.
                                                         6
Case #1: Does IT Matter?
Nicholas Carr:

   It is simply the infrastructure of modern
    business.
   It’s equivalent to railroads, electricity, and
    internal combustion engineering.
   Once innovative applications of IT have
    become simply the cost of doing business.

                                                     7
Case #1: Does IT Matter?
 How important is IT to GE?

    Business imperative
    Lifeblood for productivity
    20% return on technology investments and
     GE invests $2.5 to $3 billion a year



                                            8
Case #1: Does IT Matter?
 Nicholas Carr:

 Today’s main risk is not under using IT but
  overspending on it.




                                               9
Case #1: Does IT Matter?
Michael Dell, CEO of Dell Computers

   Anything in business can be either a
    sinkhole or a competitive advantage if
    you do it really, really bad or you do it
    really, really well.
   You’ve got a lot of people who don’t
    know what they’re doing and don’t do it
    very well.
                                            10
Case #1: Does IT Matter?
Andy Grove, Chairman of Intel Corp.

   Commercial-transaction processing in
    the United States and some parts of
    Europe has reach maturation but that’s
    only one segment of IT.


                                             11
Case #1: Does IT Matter?

 A bunch of networks and computers
OR
 Hardware plus the software that

  mediates and manages human
  knowledge or information



                                      12
Case #1: Does IT Matter?
Charles Fitzgerald, Microsoft General
 Manager

   The source of competitive advantage in
    business is what you do with the
    information that technology gives you
    access to. How do you apply that to
    some particular business problem?
                                         13
    Case #1: Does IT Matter?
Paul Strassman, former CIO of General
 Foods, Xerox, Pentagon, and NASA

   Information technology today is a
    knowledge-capital issue.
   Look at the business powers – most of all
    Wal-Mart, but also companies like Pfizer
    or FedEx. They’re all waging information
    warfare.
                                            14
     Case #1: Does IT Matter?
1.   Do you agree with the argument made
     by Nick Carr to support his position that
     IT no longer gives companies a
     competitive advantage? Why or why
     not?
2.   Do you agree with the argument made
     by the business leaders in this case in
     support of the competitive advantage
     that IT can provide to a business? Why
     or why not?                                 15
     Case #1: Does IT Matter?
3.   What are several ways that IT could provide a
     competitive advantage to a business? Use
     some of the companies mentioned in this case
     as examples. Visit their websites to gather
     more information to help you answer.
4.   What does Mr. Strassman mean by information
     warfare?
5.   Can information technology give a competitive
     advantage to a small business? Why or why
     not? Use an example to illustrate your answer.

                                                  16
 Strategic Information Systems
Definition:
 Any kind of information system that uses
  information technology to help an
  organization gain a competitive
  advantage, reduce a competitive
  disadvantage, or meet other strategic
  enterprise objectives.

                                             17
Mission and Competitive
Strategies
   Corporate Mission or Objective
   Competitive Strategy - Major policies to
    support the company to compete with
    other companies so it can survive in the
    long run




                                           18
Competitive Forces and
Strategies




                         19
Competitive Forces
Definition:
 Shape the structure of competition in
  its industry.




                                          20
    Porter’s Competitive Forces
    Model
    To survive and succeed, a business must
    develop and implement strategies to effectively
    counter the:
   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
                                                      21
Competitive Strategy
   Cost Leadership Strategy
   Differentiation Strategy
   Innovation Strategy
   Growth Strategy
       Significantly expanding a company’s
        capacity to produce goods and services
   Alliance Strategy

                                                 22
Cost Leadership Strategy
   Becoming a low-cost producer of
    products and services
   Finding ways to help suppliers and
    customers reduce their costs
   Increase costs of competitors



                                         23
    Differentiation Strategy
   Developing ways to differentiate a
    firm’s products and services from its
    competitors’
   Reduce the differentiation advantages
    of competitors




                                            24
    Innovation Strategy
   Development of unique products and services
   Entry into unique markets or market niches
   Making radical changes to the business
    processes for producing or distributing
    products and services that are so different
    from the way a business has been conducted
    that they alter the fundamental structure of
    an industry

                                                   25
    Growth Strategy
   Significantly expanding a company’s
    capacity to produce goods and services
   Expanding into global markets
   Diversifying into new products and
    services
   Integrating into related products and
    services


                                             26
    Alliance Strategy
   Establishing new business linkages and
    alliances with customers, suppliers,
    competitors, consultants, and other
    companies




                                             27
Competitive Strategy
Examples




                       28
    Other Competitive Strategies
   Locking in customers or suppliers by
    building valuable new relationships with
    them.
   Building switching costs so a firm’s
    customers or suppliers are reluctant to
    pay the costs in time, money, effort,
    and inconvenience that it would take to
    switch to a company’s competitors.
                                               29
    Other Competitive Strategies
   Raising barriers to entry that would
    discourage or delay other companies
    from entering a market.
   Leveraging investment in information
    technology by developing new products
    and services that would not be possible
    without a strong IT capability.

                                              30
    Advantage vs. Necessity
   Competitive Advantage – developing
    products, services, processes, or capabilities
    that give a company a superior business
    position relative to its competitors and other
    competitive forces
   Competitive Necessity – products, services,
    processes, or capabilities that are necessary
    simply to compete and do business in an
    industry

                                                     31
    Customer-Focused Business
A business that:

   can anticipate customers’ future needs.
   responds to customer concerns.
   provides top-quality customer service.



                                              32
IS in a Customer-Focused
Business




                           33
Value Chain
Definition:
 View of a firm as a series, chain, or
  network of basic activities that add
  value to its products and services, and
  thus add a margin of value both to the
  firm and its customers.


                                            34
Value Chain




              35
Value Chain




              36
Case #2: Using IT to tap
Expert Know-How
U.S. DOC AskMe Knowledge
 Management System
   Automated best practices
   Automated experts’ profile creation
   Addition of numerous methods for accessing
    and delivering knowledge
   Integrated real-time collaborative services
   Comprehensive analytic capabilities
                                                  37
Case #2: Using IT to tap
Expert Know-How
Benefits
 Experts’ knowledge is organized

 Experts’ are more easily contacted

 Information is reusable saving 750
  hours of repetitive work
 Return on investment is tracked

 Popular topics are identified so DOC can
  beef up its expertise in those areas
                                         38
     Case #2: Using IT to tap
     Expert Know-How
1.   What are the key business challenges
     facing companies in supporting their
     global marketing and expansion
     efforts? How is the AskMe knowledge
     management system helping to meet
     this challenge? Explain.


                                            39
     Case #2: Using IT to tap
     Expert Know-How
2.   How can the AskMe system help to
     identify weaknesses in global business
     knowledge within the Department of
     Commerce?
3.   What other global trade situations
     could the AskMe system provide
     information about? Provide some
     examples.
                                              40
     Case #2: Using IT to tap
     Expert Know-How
4.   Is the AskMe system intended to help
     the DOC become a knowledge-
     creating organization? Why or why
     not?




                                            41
Business Process
Reengineering
Definition:
 Fundamental rethinking and radical
  redesign of business processes to
  achieve dramatic improvements in cost,
  quality, speed, and service.




                                       42
       Value Chain Analysis - Disintermediation to the Consumer




                                                                   Cost/
                                                                  Sweate
                                                                     r
Manufacturer      Distributor         Retailer         Customer    $48.50




Manufacturer                                           Customer    $40.34
                                       Retailer




Manufacturer                                          Customer     $20.45




                                                                      43
BPR vs. Business
Improvement




                   44
Stockless Inventory Compared to Traditional and Just-in-time
                      Supply Methods




                                                               45
Cross-Functional Processes




                             46
Agility
Definition:
 The ability of a company to prosper in
  rapidly changing, continually
  fragmenting global markets for high-
  quality, high performance, customer-
  configured products and services.


                                           47
Agile Company
Definition:
 A company that can make a profit in
  markets with broad product ranges and
  short model lifetimes, and can produce
  orders individually and in arbitrary lot
  sizes.


                                         48
    Becoming an Agile Company

Dell Computer – Agility in Action
   Customer-Focused Company
   Champion of Mass Customization
   Build-to-Order Business Model
   25,000 on a Typical Day
   Tight Supply Chain Management
   Rarely More than Two Hours Worth of
    Parts Inventory
                                          49
Mass Customization
Definition:
 Providing individualized products while
  maintaining high volumes of production




                                        50
Agile Competitor




                   51
Virtual Company
Definition:
 An organization that uses information
  technology to link people,
  organizations, assets, and ideas.




                                          52
Inter-enterprise Information
Systems
Definition:
 Information systems implemented on
  an extranet among a company and its
  suppliers, customers, subcontractors,
  and competitors with whom it has
  formed alliances.


                                          53
    Virtual Company Strategies

Cisco Systems: Virtual Manufacturing
    Alliances
   Alliances Create a Virtual Manufacturing
    Company
   Three Companies Involved in the Alliance
   Provides and Agile Build-to-Order
    Capability in Fiercely Competitive Industry

                                                  54
Virtual Company




                  55
    Virtual Company Strategies
   Share infrastructure and risk with
    alliance partners.
   Link complementary core competencies.
   Reduce concept-to-cash time through
    sharing.



                                            56
    Virtual Company Strategies

   Increase facilities and market coverage.
   Gain access to new markets and share
    market or customer loyalty.
   Migrate from selling products to selling
    solutions.



                                               57
Knowledge-Creating
Companies
Definition:
 Consistently creating new business
  knowledge, disseminating it widely
  throughout the company, and quickly
  building the new knowledge into their
  products and services.


                                          58
Types of Knowledge
   Explicit Knowledge – data, documents,
    things written down or stored on
    computers

   Tacit Knowledge – the “how-tos” of
    knowledge, which reside in workers


                                            59
 Knowledge Management
Definition:
 Techniques, technologies, systems, and
  rewards for getting employees to share
  what they know and to make better use
  of accumulated workplace and enterprise
  knowledge.
Knowledge Management Systems –
  manage organizational learning and
  business know-how
                                        60
Levels of Knowledge
Management




                      61
Case #3: Shareware Grows Up

How a software cooperative works
 Companies pay a membership which
  entitles them to use any of the intellectual
  property of the co-op.
 Member companies will donate intellectual
  property, cooperate in adapting it for other
  companies, help troubleshoot problems
  and form sub-groups to develop needed
  niche software for the library.
                                             62
Case #3: Shareware Grows Up

 Benefits
  Decrease in the total cost of ownership
   of software
  Co-op becomes responsible for assets
   and also ensure that there’s a clear title
   so member companies can’t be sued
   later
  The larger the installation base, the
   lower the cost of ongoing maintenance
                                            63
Case #3: Shareware Grows Up

 Challenge
  Getting members to really collaborate




                                           64
Case #3: Shareware Grows Up

  1.   Organizations are constantly striving
       to achieve competitive advantage,
       often through their information
       technologies. Given this constant,
       why does Hansen suggest that
       competition among members
       shouldn’t be an issue because the
       shared assets don’t bring competitive
       advantage? Explain.
                                               65
Case #3: Shareware Grows Up

 2.   What do you see as the potential risks
      associated with the Avalanche
      approach? Provide some examples.
 3.   How could other companies apply the
      cooperative model used by Avalanche
      to achieve efficiencies in areas other
      than software support? Explain.

                                           66
Case #4: Customer-Loyalty
Systems
Satisfaction vs. Loyalty
 A satisfied customer is one who sees
  you as meeting expectations.
 A loyal customer, on the other hand,
  wants to do business with you again
  and will recommend you to others.


                                         67
Case #4: Customer-Loyalty
Systems
   A good loyalty program combines
    customer feedback and business
    information with sophisticated analytics
    to produce actionable results.

   With good customer loyalty technology,
    IT can wire the voice of the customer
    back into the enterprise.
                                           68
Case #4: Customer-Loyalty
Systems
How can IT help?
 Gathering customer experience data by e-

  mail rather than telephone dramatically
  reduces survey cycle times
 Can build in validated, multivariate measures

  of loyalty into the software
 Software-generated models can accurately

  predict customer’s purchasing behavior
 IT can be used to deliver rewards to

  customers based on predictive analysis        69
Case #4: Customer-Loyalty
Systems
1.   Does CDW’s customer loyalty program give
     them a competitive advantage? Why or
     why not?
2.   What is the strategic value of Harrah’s
     approach to determining and rewarding
     customer loyalty?
3.   What else could CDW and Harrah’s do to
     truly become a customer-focused
     businesses? Visit their websites to help you
     suggest several alternatives.
                                                70
Summary
   Information technologies can support many
    competitive strategies including cost
    leadership, differentiation, innovation, growth
    and alliance.
   IT can help
       Build customer-focused businesses
       Reengineer business processes
       Businesses become agile companies
       Create virtual companies
       Build knowledge-creating companies
                                                  71

				
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