Chapter

2
Competing with
Information Technology

McGraw-Hill/Irwin

Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives
Identify several basic competitive
strategies and explain how they use
information technologies to confront the
competitive forces faced by a business
Identify several strategic uses of Internet
technologies and give examples of how
they help a business to gain competitive
advantages
Give examples of how business process
reengineering frequently involves the
strategic use of IT
2-2

Learning Objectives
Identify the business value of using
Internet technologies to become an agile
competitor or form a virtual company
Explain how knowledge management
systems can help a business gain
strategic advantages

2-3

Competitive Strategy Concepts

A strategic information system uses IT to
help an organization
Gain a competitive advantage
Reduce a competitive disadvantage
Meet other strategic enterprise objectives

What is Competitive Advantage?

Capability for advantage over competitive forces
Leading the industry in some identifiable way
Sustains profits above the industry average
Hard to maintain over a long period of time
2-4

Porters Five Forces of Competition

Rivalry of Competitors
Positive, natural, healthy

Threat of new entrants

Apple, TRS 80, Commodore, IBM, HP,
Compaq, Gateway, Dell, Acer

Threat of substitutes
Salon shampoo vs Wal-Mart brand
VCR vs DVD vs BluRay

Customer bargaining power

Buy from competitors or dont buy

Suppliers bargaining power

Your competitor pays in days not weeks
2-5

Five Competitive Strategies

Cost Leadership
Become low-cost producers
Help suppliers or customers reduce costs
Increase cost to competitors
Example: Priceline

Differentiation Strategy
Set a firms products apart from competitors
Focus on a particular segment or niche market
Example: Dell

2-6

Competitive Strategies (continued)

Innovation Strategy
Unique products, services, or markets
Radical changes to business processes
Example: Dell

Growth Strategy
Expand companys capacity to produce
Expand into global markets
Diversify into new products or services
Example: Wal-Mart

2-7

Competitive Strategies (continued)

Alliance Strategy
Includes mergers, acquisitions, joint
ventures, virtual companies
Customers, suppliers, competitors,
consultants, and other companies
Example: Wal-Mart uses automatic inventory
replenishment by supplier

2-8

Using Competitive Strategies

Not mutually exclusive
One alone wont usually fix the problem
Generally need a combination

Innovation not necessarily differentiated

Kindle v. iPad
MP3 players vs iPod
Gateway made in US, relaxed office

Differentiation not necessarily innovative

Shipping more efficient but not different
Telecom companies compete

2-9

Other Competitive Strategies

Lock in Customers and Suppliers
Deter them from switching to competitors

Create Switching Costs

Time, money, effort or inconvenience
needed to switch to a competitor

Raise Barriers to Entry

Discourage or delay other companies from
entering the market
Increase the technology or investment
needed to enter

2-10

Other Competitive Strategies

Build a strong IT department
Use IT to:
Take advantage of strategic opportunities
Improve efficiency of business practices
Develop products and services that would not
be possible without a strong IT capability

Use IT to do more than automate a system,

be creative

2-11

Business Process Reengineering

Called BPR or simply Reengineering
Radical
Seeks improvements

High potential
High risk
Important enabler of reengineering
IT
Process teams
Case managers

2-12

Strategies for Becoming an Agile Company

Presents products as solutions to problems
Can price as a solution not cost to produce

Cooperates with customers, suppliers and

competitors
Brings products to market as quickly and costeffectively as possible

Thrives on change and uncertainty

Responds to changing customer expectations

Leverages people and knowledge

Provides incentives for responsibility, adaptability,
and innovation
2-13

Creating a Virtual Company

A virtual company uses IT to link

People
Organizations
Assets
Ideas

Inter-enterprise information systems

link

Customers
Suppliers
Subcontractors
Competitors
2-14

Building a Knowledge-Creating Company

A knowledge-creating company or learning
organization
Consistently creates new business knowledge
Disseminates it throughout the company
Builds it into its products and services

2-15