chapter 2: strategic and competitive opportunities using it for competitive advantage management...

Chapter 2:Strategic and Competitive

Opportunities

Using IT for Competitive Advantage

Management Information Systemsfor the Information Age

Chapter 2: Strategic & Competitive Opportunities

Slide 2

Chapter Summary (1/2)

It’s all about…

Competitive Advantage

Providing a product or service in such a way that customers value it more than

what is offered by the competition.


Slide 3

Chapter Summary (2/2)

In perspective, however…

It’s not the IT; it’s the People

It is not the information technology that gives a company the competitive advantage…

…it is the way people use the technology and work with information that makes the

difference.


Slide 4

Sustainable Competitive Advantage

1. SCA must be valued by the customer and impact a criterion used in the purchase decision

2. SCA must be unsubstitutable3. Company must have resources

and ability to deliver the SCA4. SCA should not be easily

duplicated (reverse-engineered)

Competitive AdvantageThe ability to offer a superior anddistinctive product or service…

Sustainable Advantage…and doing so undercompetitive pressure,

again and again, over time


Slide 5

Sources of Competitive Advantage

Shift in Operational PositionMacDonald’s versus Eclectic Med

Economies of ScaleReduce Costs and Increase DemandBrand Equity, Loyalty, and QualityCustomer RelationshipsSpatial Preemption (Location)Competitive and Customer Intelligence

Information and IT!!!


Slide 6

SCA Example 1: Federal Express

Problem/Opportunity:Tracking a package required customer to speak to a customer service rep (CSR)Person-to-person contact requires staff, time, training, offices, and ultimately money

Goal:Increase productivity and decrease staff by enabling customers to process their own transactions

Solution:Adopted Internet portal solution, which allowed customers to download documentation forms, pay invoices, check account balances, and schedule on-site pickupsAdopted Internet Web site solution, accessible by any customer with a FedEx tracking number


Slide 7

SCA 1 Continued: Federal Express

CUSTOMER GAINS:

- Easier and less painful- Less time-consuming- Better information

COMPANY GAINS:

- Lower staffing costs- Satisfied customers


Slide 8

SCA Example 2: Dell Computer

Problem/Opportunity:

Too much inventory (and, hence money) tied up in distribution chain with BUY-HOLD-SELL retailing model

Goal:Disintermediation

Move sales model to a SELL-SOURCE-SHIP set of business processes

Solution:Implement a Web-based customer-integrated order system (CIS)Implement an Internet-based Just-In-Time (JIT) inventory control & management systemEnsure that “partners” are linked electronically and require them to use Electronic Data Interchange (EDI)


Slide 9

SCA 2 Continued: Dell Computer

CUSTOMER GAINS:

- Easier and less painful- Less time-consuming- Customization- Online support

COMPANY GAINS:

- Lower staffing costs- Lower inventory costs- Cashflow timeliness- Satisfied customers


Slide 10

Information Technology as an Enabler

1.1. Competitive DisadvantageCompetitive DisadvantageFirm that has not yet adopted a technology-enabled process is often at a disadvantage

2.2. Competitive AdvantageCompetitive AdvantageEarly adoption is costly (development), but results in a temporary differentiator advantage

3.3. Competitive ParityCompetitive ParityEveryone has it; the technology-enabled process is a necessity (cost of doing business)

4.4. Sustainable Competitive AdvantageSustainable Competitive AdvantageAbility to learn, evolve, and innovate


Slide 11

Adoption, Time, & Competitive Advantage


Slide 12

Information Technology in Context

“Over time, the benefits of a given technology-enabled process will fade as competitors develop, or adopt, similar process enablers. Thus, firms that wish to use technology as a competitive weapon must be prepared to continuously invest, both time and resources, in order to maintain a leadership position.”

George SpaffordKPMG GlobalJune 11, 2003


Slide 13

Harvard Professor, Michael Porter

Competitive Forces Model (or Five Forces)

Evaluates the relative attractiveness of an industry for entry or expansion

Three Generic StrategiesCost LeadershipDifferentiationFocused Strategy (Narrower Target)

Value Chain ModelPrimary and supporting business processes that add value to a product or service

Porter’s Competitive Forces Model

If buyer power is high (many options fulfill needs/wants),industry is less attractive.

If supplier power is high(e.g., oligopoly), industry is less attractive. Goal is to reduce supplier power.

The threat is high when there are many alternatives available and low when there are few alternatives. Fewer substitutes, however, increases supplier power.

The threat is high when it is easy for firms to enter the industry (e.g., low capital outlay).

If rivalry is high (e.g., price wars), industry is less attractive.

Determinants of Degree

Determinants of Supplier PowerSwitching costs of industry firmsPresence of substitute inputsImpact of inputs on cost or differentiationInformation available to buyersTechnology-enabled processes (EDI)

Barriers to EntryEconomies of scale (capital required)Switching costs (relationships)Proprietary products/servicesAccess to distributionTechnology-enabled processes (Sabre)

Determinants of Buyer PowerBargaining leverage (volume)Switching costsPrice sensitivityAvailability of substitutesThreat of backward integrationTechnology-enabled processes (CIS)Threat of Substitutes

Relative price/performanceSwitching costs (relationships)Buyer propensity to switch/substituteTechnology-enabled processes (TaxWiz)

Degree of RivalryIndustry growth and life cycleExit barriers (diversity of rivals)Brand identity & corp. stakesTechnology-enabled cost efficiencies

Competitive Strategies

Reducing the Power of Suppliers- Locate alternative sources of supply- Partner with or “take over” supplier- Supply and value chain management- Increasing integration and dependency- B2B technology marketplace

Reducing Threat of New EntrantsBlocking strategies:- performance guarantees- technology-enabled processes- controlling access and locations- high switching costs- satisfied customers (WOM)

Reducing the Power of BuyersIncrease brand loyaltyIncrease incentives and value-addedMove purchase decision from priceIncrease switching costs- stress customer relationships- stress customization of service- stress experiential risks- stress social visibility

Reducing the Threat of RivalryRetaliation strategies:- focus on long-term contracts/relationships- fight aggressively using marketing mix- develop a reputation for being aggressive

Reducing the Threat of SubstitutesAdaptation strategies:- match new service offers/value-addedness- expand service package and differentiate- ensure sustainable competitive advantages


Slide 17

Strategies in the Life Cycle


Slide 18

Airlines and Competitive Forces

Frequent flyer programs provide an example of how IT can alter Porter’s five forces:

They reduced buyer power by making it less likely a traveler would choose another airline.They reduced the threat of substitute products or services by increasing switching costs.They erected entry barriers by making a frequent flyer program a practical necessity for any airline to compete effectively.


Slide 19

Porter’s Value Chain Model

Views the organization as a chain of business processes, each of which adds value to the product or serviceGather information on how the customer perceives value is added in order to identify the key componentsDetermine how to implement IT solutions to support and enhance the key components or business processes


Slide 20

Components of the Value Chain

Identify key components from customer’s perspective and then determine IT solutions to better support or enhance those component processes.


Slide 21

New E-Economy

New business models are still being created

Many e-business successes and failures over the past several years

The primary difference between the Old and New economies is the INTERNETINTERNET:

The Internet is GlobalThe Internet is AffordableThe Internet is Accessible


Slide 22

E-Commerce Strategies

Mass CustomizationCustomer customizes purchase to meet needs

Mass PersonalizationVendor customizes experience to serve customer

DisintermediationBy-passing distributors, wholesalers, & retailers

Global ReachEasier to live well as a small fish in a big pond


Slide 23

Other Strategic Areas for IT

In supply chain management through just-in-time (JIT) inventory managementIn the customer interface via e-commerceIn logistics through GPS/GISIn client management through groupwareIn marketing through data miningIn internal management through intranetsIn financial position/cash flow through EDI


Slide 24

Summary

When using IT to solve a business problem, keep in mind:

Be efficient and effective

Competition is everywhere

Push the state-of-the-art technology

Competitive advantage through IT can be significant, but may also be costly and only temporary

chapter 2: strategic and competitive opportunities using it for competitive advantage management...

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