Document

Competing with Information Technology

Dr Sherif KamelDepartment of ManagementSchool of Business, Economics and Communication

Copyright © 2005 Sherif KamelCopyright © 2003 James O’Brien

Outline

Strategic uses of information technology

Competitive strategy concepts and forces

Firm and Internet value chains

eBusiness strategies

Virtual organizations and knowledge management

Cases

o Capital One Financial Corp:Using Information Technology for Competitive Advantage

o GM, Fidelity Investments and Staples:Expanding Strategic Web-based Alliances

o Dell Computer:Benefits and Challenges of B2B eCommerce Strategies


Strategic uses of information technology

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

It is perceived as a platform to re-engineer organizational development and growth

RaiseBarriersto Entry

Build aStrategic IT

Platform

Build a Strategic

Information Base

Increase amount of investment or complexity of IT needed to compete

Use IT to provide information to support firm’s competitive strategy

Leverage investment in IS resources from operat- ional uses to strategic uses

IncreaseMarket Share

Create NewBusiness

Opportunities

EnhanceOrganizational Collaboration

Strategy

IT Role

Outcome


Competitive strategy concepts

The strategic role of information systems involves using information technology to develop products, services and capabilities to provide advantages over competitors

Strategic information systems (SIS) supports and shapes the competitive position and strategies of an eBusiness enterprise

What are the competitive forces and competitive strategies?


Rivalry of competitorswithin its industry

Bargaining of powerof customers

Threat of newentrants

Bargaining of powerof suppliers

Threat of substitutes

Competitive forces


Competitive strategies

Competitive strategies are developed to counter and meet competitive forces

The strategies include:o Cost leadership strategy

Low-cost producer of products and services Reducing the cost for both suppliers and consumers Attempting to increase the cost of competitors

o Differentiation strategy Developing ways to differentiate a firm’s products and services from its competitors Attempting to reduce the competitive differentiation of competitors Establishing and focusing on niches of products and services

o Innovation strategy Developing new different and innovative ways to do business Developing new products and services Introducing changes to the business processes


Competitive strategies

o Growth strategy Expanding the firm’s capacity to produce products and services Expanding in local, regional and international markets Diversifying into additional and new products and services

o Alliance strategy Establishing new business partnerships and alliances with various types of counter

parts: Customers Suppliers Consultants Competitors

Engaging in mergers, acquisitions, joint ventures, etc….

Other competitive strategies that capitalize on the use of information technology and include…

o Locking in customers or suppliers

o Raising barriers to entry

o Leveraging investment in information technology


Competitive forces and strategies

Differentiation

Customer Competitor New Entrant

Cost

Innovation

Growth

Alliance

OtherStrategies

Competitive Forces

SubstituteSupplier

Co

mp

etit

ive

Str

ateg

ies

BargainingPower

BargainingPower

Threatof

Rivalryof

Threatof


Value chain and strategic IS

The value-chain concept was developed by Michael Porter

It views the organization as a series, chain or network of basic activities that adds values to its products and services and respectively add a margin of value to the firm

Value chain have primary and support processes that are vital for the proper flow of activities within the firm

o Primary activities relate to production and distribution of products and services

o Support activities related to the organization infrastructure as well as employees and management


Administrative Coordination and Support ServicesSIS – Collaborative Work Systems

Human Resources ManagementSIS – Employee Skills Database Systems

Technology DevelopmentSIS – Computer-Aided Engineering and DesignProcurement of ResourcesSIS – Electronic Data Interchange with Suppliers

InboundLogistics

SISAutomated

JITWarehousing

Operations

SISComputer

AidedFlexible

Manufacturing

OutboundLogistics

SISOnlinePoint

Of Sale And order

Processing

MarketingAnd

Sales

SISInteractiveTargetingMarketing

CompetitiveAdvantage

CustomerService

SISHelp Desk

Expert Systems

Firm value chain


Internet Value-Chain

Marketing andproduct research

Sales anddistribution

Support andcustomer feedback

Increased marketshare

Lower costmargins

Enhanced customersatisfaction

Data for marketresearch

Establishes consumer

Response to new products

Environmental scanning

Reaches newcustomers

Low-costdistributed method

Electronic catalogs

Multiplies contactpoints at noincremental

cost

Access to customercomments

online

More staff incontact withcustomers

Immediateresponse to

customerproblems

Impactcapability

Benefitsto

company

Opportunitiesfor

advantage


Identifying eBusiness/eCommerce strategies

eBusiness and eCommerce applications and Internet technology can be used strategically for creating a competitive advantage

It is important to continuously assess the strategic valuation of different applications

Firms should know how and when to use Internet-related technology


Strategic positioning matrix of Internet technology

Global MarketPenetration

eCommerce websitesValue-added IT ServicesCustomer Relationship

Management

Product and ServicesTransformation

eBusiness, Intranets and Extranets

Cost andEfficiency

Improvements

eMail, Chat Systems, WWW, discussion groups

Performance Improvements in

Business Effectiveness

Intranets and Extranets

Strategy

Solution

Low

High

High

Cu

sto

me

r C

om

pe

titio

n C

onn

ect

ivi ty

eBusiness Processes Connectivity

Internal Drivers

Ex

tern

al D

rive

rs


Building customer-focused business

The driving force behind world economic growth has changed from manufacturing volume to improving customer value

o Moving from product-base to service-base

As a result, the key success factor for many firms is maximizing customer value

It is vital to emphasize for customer value that quality rather than prices has become the primary determinant in a customer’s perception of value

o Build a community of customers, employees, and partners

o Let customers place orders directly

o Let customers place orders thru distribution partners

o Let customers check order history and delivery status

o Give all employees a complete view of customers

o Link Employees and distribution partners


Customers

Websites

Intranets Extranets

The Internet

CompetitiveEnvironment

New-BusinessProductPotential

TechnologyDevelopments

InternetCapabilities

BusinessPartners

Competitors

Global Markets

VendorsSupplier

Constraints

CostContainment

PriceCompetition

Corporate CommunicationsHuman Resources

InformationManagement

Marketing

Sales

Product Distribution

Core BusinessFunction

Customer Support

ProductDevelopment

Research

Systems

Internet and eBusiness-eCommerce


Reengineering business processes

Reengineering reflects the need to rethinking and radically redesigning business processes to achieve dramatic improvements in…

o Cost

o Quality

o Speed

o Service

Using IT for organizational restructuring

Job re-design

Smart-sizing


Becoming an Agile company

Moving from a competitive environment in which mass-market products and services were…

o Standardized

o Long-lived

o Information poor

o Exchanged in one-time transaction

…to an environment that competes globally with niche market of products and services that are…

o Individualized

o Short-lived

o Information rich

o Exchanged on an ongoing basis with customers


Strategies for an agile competitor

Enrich customers with solutions to their problems

Cooperate to enhance competitiveness

Organize to master change and uncertainty

Leverage the impact of people and information


Creating a virtual organization (VO)

VO is helping executives and staff globally to collaborate without face2face interaction

A virtual organization uses information technology to link people, assets and ideas


Free-Perfect-Now business model

Perfect

Now

Free

Acces

sibilit

y

Delive

ry T

ime

Custo

mer

s’

Time

to m

arke

t

Anticipationof future needs

Customization

Conformance

Cost of Transaction

Cost of Value-added

Service

Cooperate with Business Partnersand Competitors

Cooperate with Business Partnersand Competitors

Leverage theImpact of

People and IS Resources

Give Customers Solutions

to Problems

Give Customers Solutions

to Problems

Organize toMasterChange

Organize toMasterChange


Model for a Virtual Organization

Alliance with small suppliers

Extranets

Intranets

Alliance with a major supplier

Cross-functional teamsEngineering teams

Alliance with a major customer

Manufacturing teams

Customer response and order-fulfillment teams

Boundary of firmAlliance with subcontractors

Alliance with a competitor who provides services that are complementary


Characteristics of virtual organizations

Adaptability

Borderless

Excellence

Technology

Opportunism

Trust-based


Knowledge management definition

Knowledge management creates technologies and rewards for getting employees to share what they know and to make better use of accumulated workplace knowledge

o Knowledge management systems (KMS) help manage the knowledge created within the firm using advanced information and communication technology

o KMS leads to the formulation of processes, formulas, best practices, and help facilitate organizational learning and multiply knowledge creation


Building a knowledge creating company

Knowledge is becoming the primary factor for organizational growth and development with a focus on innovation – also called learning organizations

o Explicit knowledge

o Tacit knowledge

Case 1

Capital One Financial Corp.:Using Information Technology for

Competitive Advantage


Capital One Financial Corp

Capital One Financial Corporation is the most profitable credit card company in the United States

Uses IT as a strategic foundation for their business strategies and practices

Leading the credit cards market using cutting edge IT

Internet and customer relationship management solutions to create over a 100,000 unique customers and credit card products


3 step-approach for an information-based strategy

Step 1

o Create an idea for a new product offering, find a target population and a business case and then change the environment for members of this group to see how they react

Step 2

o Gathering data and analyze the results

Step 3

o Use the results to implement micro segmentation or to identify which people are most receptive to specific products and services


Actions taken

Track visitors’ activities and offer customized promotions on website

Study which online visitors that have been successfully converted into customers

Uses information obtained through studies of visitors activities to buy banner ads on other websites whose visitor demographics matching its own customers


Costs of Competition

Capital One has spend hundreds of millions of dollars on hardware, software, network, and data management technologies, and the IT professionals who help develop and maintain their information-based strategy driven systems


Results of using the information-based strategy

Doubling the company’s goal of opening 1 million new accounts online

Customer base has grown from 6 million in 1995 to 33 million today

Adding 25,000 new customers each day

Serving a more diversified and customer-base and catering for a wider variety of needs

Case 2

GM, Fidelity Investments and Staples:Expanding Strategic Web-based

Alliances


Business Alliances

GM and Fidelity Investments joined forces to form a wireless system to keep clients informed anytime, anywhere

Business alliances among not-so obvious allies are skyrocketing

Reasons given for forming business alliances include:

o Cost reduction in the supply chain

o Access to new markets

o Opportunity to share in another respected company’s reputation

Customers can manage their accounts virtually anytime and anywhere

GM gets free content for its in-car information service

Fidelity wins access to more than 800,000 commuters who spend an average of 90 minutes per day in their cars

GM offered the distribution channel, Fidelity offered a service that was attractive to the customers


Staples and Partners

Staples Strategy

o Major goal of expanding the website was to increase its product offerings with out taking their eyes off their core businesses (1,100 retail stores)

Establishing partnerships allowed them to integrate with wholesalers and manufacturers to offer more products

Staples were able to limit its IT investment by acting as a portal to partners’ websites, rather than linking to their order entry systems or creating a shared data center

www.staples.com partners ensure that their websites can handle the traffic that Staples sends their way

Partners are responsible for providing their own infrastructure.

Case 3

Dell Computer:Benefits and Challenges of B2B

eCommerce Strategies


Dell Computer and the Internet

1994 – Started moving the business online www.dell.com

1997 – Introduced an electronic catalog that allowed corporate customers to purchase Dell machines over the WWW

2000 – Dell began to implant itself more deeply into its business customers’ electronic business systems


WebMethods: EAI Software

B2B integration software

EAI technology acts as a software translator and creates a kind of hub that, using the WWW, allows instantaneous communication among networked companies’ internal business systems

o Speed the eProcurement process

o Pull rather than push marketing

o Reduces the number of procurement errors

o Lower costs for processing each order


Dell strategy

Customization of prospective B2B customers systems can be very expensive

Providing 24/7 customer relationship management services

Experimenting with IT concepts such as data warehousing, event tracking, and demand shaping

Systems integration

o Web-enabled business enterprise automatically reacts to stimuli from hundreds of sources, makes thousands of adjustments in real time, and gets products to customers very quickly

Document

Documents

competitive position

business strategy

services alliance strategy

services innovation

competitive advantage

use of information technology

firms products

distribution of products