Chapter 2 Competing with

Information Technology

James A. O'Brien, and George Marakas.

Management Information Systems with MISource
2007, 8th ed. Boston, MA: McGraw-Hill, Inc.,
2007. ISBN: 13 9780073323091
Learning Objectives
 Identify several basic competitive strategies and explain
how a business can use IT to confront the competitive
forces faced by a business
 Identify several strategic uses of IT and give examples
of how they give competitive advantages to a business
 Give examples of how business process reengineering
frequently involves the strategic use of IT
 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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Strategic IT
 Technology is no longer an afterthought in
business strategy, but the cause and driver
 IT can change the way businesses compete
 A strategic information system is any
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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Case 1 GE, Dell, Intel, GM and
Others
 Does IT matter?
 No
 Nicholas Carr argues that IT is infrastructure,

much like electricity

 Too commonplace to offer a competitive

advantage
 Yes
 It is not just networks and computers
 The important part is the software and

information and how IT is used

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Case Study Questions
 Do you agree with the argument made by
Nicholas Carr to support his position that IT
no longer gives companies a competitive
advantage?
 Do you agree with the argument made in
support of the competitive advantage that IT can
provide to a business?
 What are several ways that IT could provide
competitive advantage to a business?

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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

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Competitive Forces and Strategies

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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 the buyer sets the price

 Differentiation Strategy
 Differentiate a firm’s products from its
competitors’
 Focus on a particular segment or niche of
market
 Example: Moen uses online customer design

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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

ordering via global satellite tracking

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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

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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

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Ways to Implement Basic Strategies

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Other Competitive Strategies
 Lock in Customers and Suppliers
 Deter them from switching to competitors
 Build in Switching Costs
 Make customers and suppliers dependent on the use of
innovative IS
 Erect Barriers to Entry
 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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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

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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
 Tailor customer services to the individual
 Use Customer Relationship Management
(CRM) systems to focus on the customer

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Building Customer Value via 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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Using IS in the Value Chain

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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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Case 2 GE Energy and GE
Healthcare
 The Internet rapidly advanced large-scale storage and data
analysis
 Products could be networked and accessed at customer
sites
 Connectivity was cheap
 Unprecedented opportunities for strategic relationships
and returns
 GE saw unprecedented opportunities for strategic
relationships and returns
 Invested heavily in remote monitoring and diagnostics
 Profitability went up
 Created customer dependency
 Has created longer-term customer relationships
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Case Study Questions
 What are the business benefits of using IT to
build strategic customer relationships for GE
Energy and GE Healthcare?
 What are the business benefits for their
customers?
 What strategic uses of information technology
do you see implemented in this case?
 How could other companies benefit from the
use of IT to build strategic customer
relationships?

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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
managers
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BPR Versus Business Improvement

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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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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
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Becoming an Agile Company
 Agility is the ability to prosper
 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
 Individualized products
 Arbitrary lot sizes

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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

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How IT Helps a Company be Agile

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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
 Competitors

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A Virtual Company

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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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Two Kinds of Knowledge
 Explicit Knowledge
 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

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Knowledge Management
 Successful knowledge 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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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
works, formulas, best practices, forecasts, and
fixes
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Case 3 CDW, Harrah’s, and Others
 A satisfied customer has expectations met
 A loyal customer wants to do business with the
company again, and recommends it to others
 A good customer loyalty system combines
 Customer feedback
 Business information
 Sophisticated analysis
 IT must take the lead in loyalty
 Create actionable results

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Case Study Questions
 Does CDW’s customer loyalty program give
them a competitive advantage?
 What is the strategic value of Harrah’s approach
to determining and rewarding customer loyalty?
 What else could CDW and Harrah’s do to truly
become customer-focused businesses?

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Case 4 The U.S. Dept. of Commerce
 The DOC uses DOC Insider to offer advice on
doing business abroad
 The AskMe system includes…
 Automated best practices
 Automatic experts’ profile creation
 Methods for accessing and delivering
knowledge
 Real-time collaboration services
 Analytic capabilities

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Case Study Questions
 What are the key business challenges facing
companies in supporting their global marketing
an expansion efforts?
 How is the AskMe knowledge management
system helping to meet this challenge?
 How can the AskMe system help identify
weaknesses in global business knowledge with
the DOC?
 What other global trade situations could the
AskMe system provide information about?

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