competitive advantage with information systems

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Competitive Advantage with Information Systems

Reading:Laudon & Laudonchapter 3

Additional Reading:Brien & Marakaschapter 2

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OutlineCompetitive Advantage with Information Systems

Porter’s Competitive Forces ModelStrategies for Dealing with Competitive ForcesStrategic Use of Information TechnologyThe Value Chain and Strategic IS

Competing on Global Scale

Competing on Quality and DesignWhat is QualityHow IS improve Quality

Competing on Business Process

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SolutionLaunches iPod and set up iTunes Music Store

Create a marketplace for portable, downloadable musicPartnerships with artists and recording labels

allow iTunes to supply exclusive content in return for driving sales and increasing groups’ popularity

Illustrates digital technology’s role in gaining and maintaining a competitive advantage

ProblemTaking advantage of opportunities from new and disruptive technology, staying ahead of traditional competitors

Apple’s iTunes: Music’s New Gatekeeper

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Apple’s iTunes: Music’s New Gatekeeper

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Information TechnologyNo longer an afterthought in forming business strategy, but the actual cause and driverCan change the way business compete

Strategic Information SystemAny kind of information system That uses IT to help an organization

Gain a competitive advantageReduce a competitive disadvantageOr meet other strategic enterprise objectives

Strategic Information Systems

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Five Competitive Forces Shape of Firm

Porter’s Competitive Forces Model

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Five Competitive Forces Shape of FirmTraditional competitors

Competitors in market space continuously devise new products, new efficiencies, switching costs on customers

New market entrantsSome industries have low barriers to entry

Example → food industry Vs microchip industryNewer companies may have advantages

Newer equipment, younger workforce → less expensive, more innovative, etc.


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Substitute products and servicesSubstitutes customers can purchase if your prices too highExample → Internet music service Vs CDs

CustomersAbility to attract and retain customersCan customers easily switch to competitor’s products?Can customers force firm and competitors to compete on price alone (transparent marketplace)

SuppliersThe more suppliers a firm has, the greater control it can exercise over suppliers


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Cost LeadershipBecome low-cost producersHelp suppliers or customers reduce costsIncrease cost to competitorsExamples

Wal-Mart → Replenishes inventory with lightening speed, not need money to maintain inventoryeBay.com → Online auctions, Auction-set prices

Differentiation StrategyDevelop ways to differentiate a firm’s products from its competitorsCan focus on particular segment or niche of marketExamples

Dell Computer → Online customer design, Increase in market shareMoen Inc. → Online customer design, Increase in market share

Five Competitive Strategies

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Differentiation StrategyOn the Dell Inc. Web site, customers can select the options they want and order their computer custom built to these specifications. Dell’s assemble-to-order system is a major source of competitive advantage.


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Innovation StrategyFind new ways of doing business

Unique products or servicesOr unique marketsRadical changes to business processes to alter the fundamental structure of an industry

Example → Amazon uses online full-service customer systems

Growth StrategyExpand company’s capacity to produce goods and servicesExpand into global marketsDiversify into new products or services Examples

Wal-Mart → uses merchandise ordering by global satellite trackingCiticorp → uses global intranet, increase in global market


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Alliance StrategyEstablish linkages and alliances with

Customers, suppliers, competitors, consultants and other companiesIncludes mergers, acquisitions, joint ventures, virtual companiesExamples

Procter & Gamble → automatic inventory, reduced inventoryCisco Systems → Virtual manufacturing alliances, market leadership

Using These StrategiesThe strategies are not mutually exclusiveOrganizations use one, some or all


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Using IT for These Strategies


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Internet’s Impact on Competitive AdvantageExisting competitors

Widens market, increasing competitors, reducing differences, pressure to compete on price

New entrantsReduces barriers to entry (e.g. need for sales force declines), provides technology for driving business processes

Substitute products and servicesFacilitates creation of new products and services

Customers’ bargaining powerBargaining power shifts to customer

Suppliers’ bargaining powerProcurement over Internet raises power over suppliers, suppliers can benefit from reduced barriers to entry and elimination of intermediaries

Competitive Advantages

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Porter ModelNot very specific

What exactly to do?No exact methodology for competitive advantage

Value Chain ModelHighlights specific activities in the business

Competitive strategies can be best appliedIT Systems are most likely to have impact

Primary ActivitiesSupport activitiesBenchmarking

Comparing efficiency of your b* process with strict standardsBest practices

Identified by Government or research organizations → most successful solution for achieving business objective

The Business Value Chain Model

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The Business Value Chain Model

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BPRFundamental rethinking and radical redesign of business processes to achieve improvements in costcost, qualityquality, speedspeed and serviceserviceTasks are streamlined to eliminate repetitive and redundant workPotential payback highRisk of failure is also highMortgage banks have been great beneficiaries of BPR, achieving remarkable leaps forward in efficiency

Business Process Reengineering

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Workflow ManagementStreamlines business procedures so documents can be moved easily and efficientlyAutomates processesEliminates delaysAllows simultaneous work

Steps in Effective ReengineeringUnderstanding what business processes need improvementUnderstanding how the improvements will help the firm execute its strategyUnderstanding and measuring the performance of existing processes as baselinesManaging change


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Redesigning Mortgage Processing (USA)


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By redesigning their mortgage processing systems and the mortgage application process, mortgage banks are able to reduce the costs of processing the average mortgage from $3,000 to $1,000 and reduce the time of approval from six weeks to one week or less. Some banks are even preapproving mortgages and locking interest rates on the same day the customer applies.

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Virtual CompanyUsage of IT to Link

PeopleOrganizationsAssetsAnd ideas

Why Virtual Company?To Implement key business strategies and alliances for success in turbulent business climate

Creates inter enterprise information systemto link customers, suppliers, subcontractors and competitors

Virtual Company

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Uses Internet, Intranets, and Extranets to form virtual workgroup and support alliances with business partners

Example → Li & Fung (HK)Manages Production and Shipment of GarmentCustomers → Fashion Companies (GUESS, Ann Taylor, Reebok, etc.)Product Development, Raw Material Sourcing, Production, Planning, Quality Assurance, ShippingDoes not own any fabric, factories, or machinesOutsourcing → Network of more than 7500 supplies in 37 countriesCustomers → Private Extranet, Li & Fung → Raw Material Supplies and Factories, Extranet tracks entire production processFlexible and adaptable, Produces in short order, changing fashion trends

Virtual Company

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Disruptive TechnologiesTechnologies with disruptive impact on industries and businesses, rendering existing products, services and business models obsolete

Examples

Disruptive Technologies

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First Movers Vs Fast FollowersFirst movers of disruptive technologies may fail to see potential, allowing second movers to reap rewards (fast followers)

Disruptive Technologies

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Before Internet (Until Mid-90’s)Only affordable by huge firms → GE, GM, IBM, etc.

Internet → Drastically Reduces costs of operating globally

Globalization BenefitsScale economies and resource cost reductionHigher utilization rates, fixed capital costs, and lower cost per unit of productionSpeeding time to market

ExamplesJeans or Sneakers with USA label? Most likely designed in California, Stitched together in HK or Guatemala using material from China or IndiaCalling for Microsoft or Verizon Help? Most likely you will be speaking to customer service representatives in India


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An HP Laptop’s Path to Market

Idea, Laptop Design Team – USA, Approval – HoustonGraphics Processors designed in Canada, Made in TaiwanTaiwan, South Korea – LCD Screens, Memory Chips, Japan, Singapore, USA – Other ComponentsChina – Assembly


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Domestic ExportersHeavy centralization of corporate activities in home country

MultinationalsConcentrates financial management at central home base while decentralizing production, sales, and marketing to other countries

FranchisersProduct created, designed, financed, and initially produced in home country but rely on foreign units for further production, marketing, and human resources

TransnationalRegional (not national) headquarters and perhaps world headquarters; optimizing resources as needed

International Business Organization

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What is Quality?

Producer’s PerspectiveConformance to specifications and absence of variation from specs

Customer’s PerspectivePhysical quality (reliability), quality of service, psychological quality

Total Quality Management (TCM)Developed in US (Deming, Juran), Popularized in JapanQuality → Responsibility of all people and functions within organizationRelies on an information system → Supplies workers and management with the data necessary to improve products and drive down costs

Six SigmaSpot problems and correct them before they are too deeply embedded in the company’s processesLonger a flaw is allowed to fester in the system → More problemsIdentify defects early and eliminate → Efficient production at lower costSpecific Measure of quality: 3.4 defects/million opportunitiesMost Companies cannot achieve this level, Use as Goal to Implement/Improve

Competing on Quality

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How Information Systems Improve Quality?Reduce cycle time (provide info) and simplify production process

Benchmarking → Identify Benchmark targets

Use customer demands to improve products and services

Improve design quality and precision

Computer-aided design (CAD) systems

Improve production precision and tighten production tolerances

Competing on Quality

competitive advantage with information systems

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