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Chapter 2
plus, little bit of chapter 7 and 8
Competing with IT
Enterprise Systems
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.
Strategic View of IS
• Information systems are vital
competitive networks.
• Information systems are a means of
organizational renewal.
• An IS can enable a businesses to
reengineer or reinvent itself in order
to survive and succeed in today’s
dynamic business environment.
Porter’s Competitive Forces
To survive and succeed, a business
must develop and implement
strategies to effectively counter the:
1. Rivalry of competitors within its
industry
2. Threat of new entrants into an
industry and its markets
3. Threat posed by substitute products
which might capture market share
4. Bargaining power of customers
5. Bargaining power of suppliers
Rivalry of competitors
• Online-shopping, price
comparison tools (Froogle,
Shopzilla, etc.) increase rivalry.
• Industries with high rivalry
– Automotive
– Cell Phone
– Retail Clothing
– Fast Food
• Industries with low rivalry?
Threat of new entrants
• Internet/E-commerce enables a
business to emerge overnight
• Almost any medium-sized retail
store can become a global ecommerce competitor at little
cost.
It costs a lot to
become a global
donut competitor
Substitute Products
• Internet makes substitutes
easier to find.
– Can’t afford to fly...take a train.
– Ipod not available...buy a Dell DJ
– Thomas the Tank Engine costs too
much...consider Imaginarium.
Bargaining power
Customer:
• Suppliers:
• Here is where
the Internet
has empowered
the customer
• Home Depot,
Walmart, etc. can
persuade suppliers
to lock-out the little
guys
• Buy forcing
suppliers into
investing SCM
software
– Ebay
– Lending Tree
– Reverse
auctions
Competitive Strategies
1.
2.
3.
4.
5.
Cost Leadership
Differentiation
Innovation
Growth
Alliance
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
Differentiation Strategy
• Developing ways to differentiate
a firm’s products and services
from its competitors’
Innovation Strategy
• Development of
unique products
and services
• Entry into unique
markets or market
niches
• Making radical
changes that alter
the fundamental
structure of an
industry
Growth Strategy
Eric’s Quick Lube, Movie Theater and
Dentist’s Office
• 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
Alliance Strategy
• Establishing new business
linkages and alliances with
customers, suppliers,
competitors, consultants, and
other companies
Examples
Cost Leadership:
Priceline.com
Bidding
Buyer set pricing
Examples
Differentiation:
Moen
Online customer
design
Increase in market
share
Examples
Innovation:
E-trade
Online discount
stock trading
Market leader,
then problems...
Examples
Growth:
Walmart
Beer, diapers, discount beef
jerky, country music CD’s,
NASCAR merchandise,
cheap plastic furniture,
and every ingredient you
need to make napalm (all
at low prices).
Market leadership
Examples
Alliance:
Walmart & Proctor N’ Gamble
Beer, diapers, discount beef
jerky, country music CD’s,
NASCAR merchandise, cheap
plastic furniture, every
ingredient you need to make
napalm, and oxycontin
(all at low prices).
Even more Market leadership
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.
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.
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
Customer-Focused Business
A business that:
• can anticipate customers’ future
needs.
• responds to customer concerns.
• provides top-quality customer
service.
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.
Business Process Reengineering
Definition:
• Fundamental rethinking and
radical redesign of business
processes to achieve dramatic
improvements in cost, quality,
speed, and service.
Agility
• The ability of a company to
prosper in rapidly changing
market
– continually fragmenting global
markets
– market demands high-quality, high
performance, customer-configured
products and services.
Agile Company
Definition:
• A company that can make a
profit in markets with
– broad product ranges
– short model lifetimes
• can produce orders individually
and in arbitrary lot sizes.
Mass Customization
Definition:
• Providing individualized products
while maintaining high volumes
of production
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.
Virtual Company
Definition:
• An organization that uses
information technology to link
people, organizations, assets,
and ideas.
Virtual Company
Virtual Company Strategies
• Share infrastructure and risk
with alliance partners.
• Link complementary core
competencies.
• Reduce concept-to-cash time
through sharing.
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.
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.
Types of Knowledge
• Explicit Knowledge –
data, documents, things written
down or stored on computers
• Tacit Knowledge –
the “how-to’s” of knowledge,
which reside in workers
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
Levels of Knowledge Management
Enterprise Systems
• Integrate/”Bring together” the
value chain in multiple
Companies
Mattel Toys
GE Plastics
Amazon.com
Enterprise Systems
• The Umbrella the covers a virtual
company.
ERP System monitors the integrated
value-chains of all these connected firms
A Small company
can have the
information and
power of a large
conglomerate
Customer Relationship
Management (CRM)
Definition:
• enterprise system that integrates
and automates many of the
customer-serving processes in
– sales,
– marketing, and
– customer services
• that interact with a company’s
customers
CRM Application Clusters
CRM to ERP
• Firms themselves are customers
of other firms.
• Shared interests leads to...
– Shared information
• which leads to
– Shared information systems
Enterprise Resource Planning (ERP)
Definition:
• A cross-functional enterprise
system driven by an integrated
suite of software modules that
supports the basic internal
business processes of a company
• Company may be virtual
• Value chain may cross-over to
multiple partner firms
ERP Process & Information Flows
ERP Benefits
• Quality and Efficiency – ERP creates a
framework for integrating and
improving a company’s internal
business processes that results in
significant improvements in the
quality and efficiency of customer
service, production, and distribution
• Decreased Costs – Significant
reductions in transaction processing
costs and hardware, software, and IT
support staff
ERP Benefits
• Decision Support – Provides vital
cross-functional information on
business performance quickly to
managers to significantly improve
their ability to make better decisions
in a timely manner
• Enterprise Agility – ERP breaks down
many former departmental and
functional walls of business
processes, information systems, and
information resources
Costs of ERP
Causes of ERP Failures
• Business mangers and IT professionals
underestimate the complexity of the
planning, development, and training needed
• Failure to involve affected employees in the
planning and development phases
• Trying to do too much too fast in the
conversion process
• Failure to do enough data conversion and
testing
Trends in ERP