Chapter 2 plus, little bit of chapter 7 and 8 Competing with IT Enterprise Systems.

Chapter 2Chapter 2plus, little bit of chapter 7 and 8plus, little bit of chapter 7 and 8

Chapter 2Chapter 2plus, little bit of chapter 7 and 8plus, little bit of chapter 7 and 8

Competing with ITCompeting with ITEnterprise SystemsEnterprise SystemsCompeting with ITCompeting with ITEnterprise SystemsEnterprise Systems

Why Study Strategic IT?Why Study Strategic IT?Why Study Strategic IT?Why Study Strategic IT?

• Technology is no longer an Technology is no longer an afterthought in forming business afterthought in forming business strategy, but the actual cause strategy, but the actual cause and driver.and driver.

• IT can change the way IT can change the way businesses compete.businesses compete.

Strategic View of ISStrategic View of ISStrategic View of ISStrategic View of IS

• Information systems are vital Information systems are vital competitive networks.competitive networks.

• Information systems are a means of Information systems are a means of organizational renewal.organizational renewal.

• An IS can enable a businesses to An IS can enable a businesses to reengineer or reinvent itself in order reengineer or reinvent itself in order to survive and succeed in today’s to survive and succeed in today’s dynamic business environment.dynamic business environment.

Porter’s Competitive ForcesPorter’s Competitive ForcesPorter’s Competitive ForcesPorter’s Competitive Forces

To survive and succeed, a business To survive and succeed, a business must develop and implement strategies must develop and implement strategies to effectively counter the:to effectively counter the:

1.1. Rivalry of competitors within its industryRivalry of competitors within its industry2.2. Threat of new entrants into an industry Threat of new entrants into an industry

and its marketsand its markets3.3. Threat posed by substitute products Threat posed by substitute products

which might capture market sharewhich might capture market share4.4. Bargaining power of customersBargaining power of customers5.5. Bargaining power of suppliersBargaining power of suppliers

Rivalry of competitorsRivalry of competitorsRivalry of competitorsRivalry of competitors

• Online-shopping, price Online-shopping, price comparison tools (Froogle, comparison tools (Froogle, Shopzilla, etc.) increase rivalry.Shopzilla, etc.) increase rivalry.

• Industries with high rivalryIndustries with high rivalry– AutomotiveAutomotive– Cell PhoneCell Phone– Retail ClothingRetail Clothing– Fast FoodFast Food

• Industries with low rivalry?Industries with low rivalry?

Threat of new entrantsThreat of new entrantsThreat of new entrantsThreat of new entrants

• Internet/E-commerce enables a Internet/E-commerce enables a business to emerge overnightbusiness to emerge overnight

• Almost any medium-sized retail Almost any medium-sized retail store can become a global e-store can become a global e-commerce competitor at little commerce competitor at little cost.cost.

It costs a lot to become a global donut competitor

Substitute ProductsSubstitute ProductsSubstitute ProductsSubstitute Products

• Internet makes substitutes easier Internet makes substitutes easier to find.to find.– Can’t afford to fly...take a train.Can’t afford to fly...take a train.– Ipod not available...buy a Dell DJIpod not available...buy a Dell DJ– Thomas the Tank Engine costs too Thomas the Tank Engine costs too

much...consider Imaginarium.much...consider Imaginarium.

Bargaining powerBargaining powerBargaining powerBargaining power

Customer:Customer:

• Here is where Here is where the Internet has the Internet has empowered the empowered the customercustomer

– EbayEbay– Lending Tree Lending Tree – Reverse Reverse

auctionsauctions

• Suppliers:Suppliers:

• Home Depot, Home Depot, Walmart, etc. can Walmart, etc. can persuade suppliers persuade suppliers to lock-out the little to lock-out the little guysguys

• Buy forcing Buy forcing suppliers into suppliers into investing SCM investing SCM softwaresoftware

Competitive StrategiesCompetitive StrategiesCompetitive StrategiesCompetitive Strategies

1.1. Cost LeadershipCost Leadership

2.2. DifferentiationDifferentiation

3.3. InnovationInnovation

4.4. GrowthGrowth

5.5. AllianceAlliance

Cost Leadership StrategyCost Leadership StrategyCost Leadership StrategyCost Leadership Strategy

• Becoming a low-cost producer of Becoming a low-cost producer of products and servicesproducts and services

• Finding ways to help suppliers Finding ways to help suppliers and customers reduce their costsand customers reduce their costs

• Increase costs of competitorsIncrease costs of competitors

Differentiation StrategyDifferentiation StrategyDifferentiation StrategyDifferentiation Strategy

• Developing ways to differentiate Developing ways to differentiate a firm’s products and services a firm’s products and services from its competitors’from its competitors’

Innovation StrategyInnovation StrategyInnovation StrategyInnovation Strategy

• Development of Development of unique products unique products and servicesand services

• Entry into unique Entry into unique markets or market markets or market nichesniches

• Making radical Making radical changes that alter changes that alter the fundamental the fundamental structure of an structure of an industryindustry

Growth StrategyGrowth StrategyGrowth StrategyGrowth Strategy

• Significantly expanding a company’s Significantly expanding a company’s capacity to produce goods and capacity to produce goods and servicesservices

• Expanding into global marketsExpanding into global markets• Diversifying into new products and Diversifying into new products and

servicesservices• Integrating into related products and Integrating into related products and

servicesservices

Eric’s Quick Lube, Movie Eric’s Quick Lube, Movie Theater and Dentist’s Theater and Dentist’s OfficeOffice

Alliance StrategyAlliance StrategyAlliance StrategyAlliance Strategy

• Establishing new business Establishing new business linkages and alliances with linkages and alliances with customers, suppliers, customers, suppliers, competitors, consultants, and competitors, consultants, and other companiesother companies

ExamplesExamplesExamplesExamples

Cost Leadership:Cost Leadership:

Priceline.comPriceline.com

BiddingBidding

Buyer set pricingBuyer set pricing

ExamplesExamplesExamplesExamples

Differentiation:Differentiation:

MoenMoen

Online customer Online customer designdesign

Increase in market Increase in market shareshare

ExamplesExamplesExamplesExamples

Innovation:Innovation:

E-tradeE-trade

Online discount Online discount stock tradingstock trading

Market leader, Market leader, then problems...then problems...

ExamplesExamplesExamplesExamples

Growth:Growth:

WalmartWalmart

Beer, diapers, discount beef Beer, diapers, discount beef jerky, country music CD’s, jerky, country music CD’s, NASCAR merchandise, NASCAR merchandise, cheap plastic furniture, cheap plastic furniture, and every ingredient you and every ingredient you need to make napalm (all need to make napalm (all at low prices).at low prices).

Market leadershipMarket leadership

ExamplesExamplesExamplesExamples

Alliance:Alliance:

Walmart & Proctor N’ GambleWalmart & Proctor N’ Gamble

Beer, diapers, discount beef Beer, diapers, discount beef jerky, country music CD’s, jerky, country music CD’s, NASCAR merchandise, cheap NASCAR merchandise, cheap plastic furniture, every plastic furniture, every ingredient you need to make ingredient you need to make napalm, and napalm, and oxycontinoxycontin (all (all at low prices).at low prices).

Even more Market leadershipEven more Market leadership

Other Competitive StrategiesOther Competitive StrategiesOther Competitive StrategiesOther Competitive Strategies

• Locking in customersLocking in customers or suppliers or suppliers by building valuable new relationships by building valuable new relationships with them.with them.

• Building switching costsBuilding switching costs so a firm’s so a firm’s customers or suppliers are reluctant customers or suppliers are reluctant to pay the costs in time, money, to pay the costs in time, money, effort, and inconvenience that it effort, and inconvenience that it would take to switch to a company’s would take to switch to a company’s competitors.competitors.

Other Competitive StrategiesOther Competitive StrategiesOther Competitive StrategiesOther Competitive Strategies

• Raising barriers to entryRaising barriers to entry that that would discourage or delay other would discourage or delay other companies from entering a market.companies from entering a market.

• Leveraging investmentLeveraging investment in in information technology by developing information technology by developing new products and services that would new products and services that would not be possible without a strong IT not be possible without a strong IT capability.capability.

Advantage vs. NecessityAdvantage vs. NecessityAdvantage vs. NecessityAdvantage vs. Necessity

• Competitive AdvantageCompetitive Advantage – – developing products, services, developing products, services, processes, or capabilities that give a processes, or capabilities that give a company a superior business position company a superior business position relative to its competitors and other relative to its competitors and other competitive forcescompetitive forces

• Competitive NecessityCompetitive Necessity – products, – products, services, processes, or capabilities services, processes, or capabilities that are necessary simply to compete that are necessary simply to compete and do business in an industryand do business in an industry

Customer-Focused BusinessCustomer-Focused BusinessCustomer-Focused BusinessCustomer-Focused Business

A business that:A business that:

• can anticipate customers’ future can anticipate customers’ future needs.needs.

• responds to customer concerns.responds to customer concerns.

• provides top-quality customer provides top-quality customer service.service.

Value ChainValue ChainValue ChainValue Chain

Definition:Definition:• View of a firm as a series, chain, View of a firm as a series, chain,

or network of basic activities that or network of basic activities that add value to its products and add value to its products and services, services,

• and thus add a margin of value and thus add a margin of value both to the firm and its both to the firm and its customers.customers.

Business Process ReengineeringBusiness Process ReengineeringBusiness Process ReengineeringBusiness Process Reengineering

Definition:Definition:• Fundamental rethinking and Fundamental rethinking and

radical redesign of business radical redesign of business processes to achieve dramatic processes to achieve dramatic improvements in cost, quality, improvements in cost, quality, speed, and service.speed, and service.

AgilityAgilityAgilityAgility

• The ability of a company to The ability of a company to prosper in rapidly changing prosper in rapidly changing marketmarket– continually fragmenting global continually fragmenting global

marketsmarkets– market demands high-quality, high market demands high-quality, high

performance, customer-configured performance, customer-configured products and services.products and services.

Agile CompanyAgile CompanyAgile CompanyAgile Company

Definition:Definition:• A company that can make a A company that can make a

profit in markets with profit in markets with – broad product rangesbroad product ranges– short model lifetimesshort model lifetimes

• can produce orders individually can produce orders individually and in arbitrary lot sizes.and in arbitrary lot sizes.

Mass CustomizationMass CustomizationMass CustomizationMass Customization

Definition:Definition:• Providing individualized products Providing individualized products

while maintaining high volumes while maintaining high volumes of productionof production

Enterprise Information SystemsEnterprise Information SystemsEnterprise Information SystemsEnterprise Information Systems

Definition:Definition:• Information systems implemented on Information systems implemented on

an extranet among a company and its an extranet among a company and its – suppliers, suppliers, – customers, customers, – subcontractors, and subcontractors, and – competitors competitors

• with whom it has formed alliances.with whom it has formed alliances.

Virtual CompanyVirtual CompanyVirtual CompanyVirtual Company

Definition:Definition:• An organization that uses An organization that uses

information technology to link information technology to link people, organizations, assets, people, organizations, assets, and ideas.and ideas.

Virtual CompanyVirtual CompanyVirtual CompanyVirtual Company

Virtual Company StrategiesVirtual Company StrategiesVirtual Company StrategiesVirtual Company Strategies

• Share infrastructure and risk with Share infrastructure and risk with alliance partners.alliance partners.

• Link complementary core Link complementary core competencies.competencies.

• Reduce concept-to-cash time Reduce concept-to-cash time through sharing.through sharing.

Virtual Company StrategiesVirtual Company StrategiesVirtual Company StrategiesVirtual Company Strategies

• Increase facilities and market Increase facilities and market coverage.coverage.

• Gain access to new markets and Gain access to new markets and share market or customer share market or customer loyalty.loyalty.

• Migrate from selling products to Migrate from selling products to selling solutions.selling solutions.

Knowledge-Creating CompaniesKnowledge-Creating CompaniesKnowledge-Creating CompaniesKnowledge-Creating Companies

Definition:Definition:• Consistently creating new Consistently creating new

business knowledge, business knowledge, disseminating it widely disseminating it widely throughout the company, and throughout the company, and quickly building the new quickly building the new knowledge into their products knowledge into their products and services.and services.

Types of KnowledgeTypes of KnowledgeTypes of KnowledgeTypes of Knowledge

• Explicit KnowledgeExplicit Knowledge – – data, documents, things written data, documents, things written down or stored on computersdown or stored on computers

• Tacit KnowledgeTacit Knowledge – – the “how-to’s” of knowledge, the “how-to’s” of knowledge, which reside in workerswhich reside in workers

Knowledge ManagementKnowledge ManagementKnowledge ManagementKnowledge Management

DefinitionDefinition::• Techniques, technologies, systems, Techniques, technologies, systems,

and rewards for getting employees to and rewards for getting employees to share what they know and to make share what they know and to make better use of accumulated workplace better use of accumulated workplace and enterprise knowledge.and enterprise knowledge.

• Knowledge Management SystemsKnowledge Management Systems – manage organizational learning and – manage organizational learning and business know-howbusiness know-how

Levels of Knowledge ManagementLevels of Knowledge ManagementLevels of Knowledge ManagementLevels of Knowledge Management

Enterprise SystemsEnterprise SystemsEnterprise SystemsEnterprise Systems

• Integrate/”Bring together” the Integrate/”Bring together” the value chain in multiple value chain in multiple CompaniesCompanies

Mattel Toys Amazon.com

GE Plastics

Enterprise SystemsEnterprise SystemsEnterprise SystemsEnterprise Systems

• The Umbrella the covers a virtual The Umbrella the covers a virtual company.company.

ERP System monitors the integrated value-chains of all these connected firms

A Small companycan have theinformation andpower of a largeconglomerate

Customer Relationship Customer Relationship Management (CRM)Management (CRM)

Customer Relationship Customer Relationship Management (CRM)Management (CRM)

Definition:Definition:• enterprise system that integrates enterprise system that integrates

and automates many of the and automates many of the customer-serving processes in customer-serving processes in – sales, sales, – marketing, and marketing, and – customer services customer services

• that interact with a company’s that interact with a company’s customerscustomers

CRM Application ClustersCRM Application ClustersCRM Application ClustersCRM Application Clusters

CRM to ERPCRM to ERPCRM to ERPCRM to ERP

• Firms themselves are customers Firms themselves are customers of other firms.of other firms.

• Shared interests leads to...Shared interests leads to...– Shared informationShared information

• which leads towhich leads to– Shared information systemsShared information systems

Enterprise Resource Planning (ERP)Enterprise Resource Planning (ERP)Enterprise Resource Planning (ERP)Enterprise Resource Planning (ERP)

Definition:Definition:• A cross-functional enterprise A cross-functional enterprise

system driven by an integrated system driven by an integrated suite of software modules that suite of software modules that supports the basic internal supports the basic internal business processes of a companybusiness processes of a company

• Company may be virtualCompany may be virtual• Value chain may cross-over to Value chain may cross-over to

multiple partner firmsmultiple partner firms

ERP Process & Information FlowsERP Process & Information FlowsERP Process & Information FlowsERP Process & Information Flows

ERP BenefitsERP BenefitsERP BenefitsERP Benefits

• Quality and EfficiencyQuality and Efficiency – ERP creates a – ERP creates a framework for integrating and framework for integrating and improving a company’s internal improving a company’s internal business processes that results in business processes that results in significant improvements in the significant improvements in the quality and efficiency of customer quality and efficiency of customer service, production, and distributionservice, production, and distribution

• Decreased CostsDecreased Costs – Significant – Significant reductions in transaction processing reductions in transaction processing costs and hardware, software, and IT costs and hardware, software, and IT support staffsupport staff

ERP BenefitsERP BenefitsERP BenefitsERP Benefits

• Decision SupportDecision Support – Provides vital – Provides vital cross-functional information on cross-functional information on business performance quickly to business performance quickly to managers to significantly improve managers to significantly improve their ability to make better decisions their ability to make better decisions in a timely mannerin a timely manner

• Enterprise AgilityEnterprise Agility – ERP breaks down – ERP breaks down many former departmental and many former departmental and functional walls of business functional walls of business processes, information systems, and processes, information systems, and information resourcesinformation resources

Costs of ERPCosts of ERPCosts of ERPCosts of ERP

Causes of ERP FailuresCauses of ERP FailuresCauses of ERP FailuresCauses of ERP Failures

• Business mangers and IT professionals Business mangers and IT professionals underestimate the complexity of the underestimate the complexity of the planning, development, and training needed planning, development, and training needed

• Failure to involve affected employees in the Failure to involve affected employees in the planning and development phasesplanning and development phases

• Trying to do too much too fast in the Trying to do too much too fast in the conversion processconversion process

• Failure to do enough data conversion and Failure to do enough data conversion and testingtesting

Trends in ERPTrends in ERPTrends in ERPTrends in ERP