Using Information Technology for Strategic

Advantage
• Strategic Uses Of Information Technology
• Major competitive differentiator
• Develop a focus on the customer
– Customer value
• Best value
• Understand customer preferences
• Track market trends
• Supply products, services, & information anytime,
anywhere
• Tailored customer service

Competitive Strategy Concepts
strategic advantages
over the competitive
forces in the global
• marketplace
Strategic Use of IS involves using IT to
– develop products
– services
– capabilities Strategic Information
Systems

support of
competitive position and
strategies of an
enterprise
Competitive Strategies to counter Competitive
Forces Competitive
Differentiatio Strategies Alliance
Innovation
n Cost Growth Other
Leadership Strategies
Threat of
Substitutes

Threat of
New
Competitive

Entrants
Forces

Rivalry of
Competitors

Bargaining
Power of
Suppliers

Bargaining
Power of
Customers
Introduction
 to Strategic Applications and
Issues in IT
Level 1: Strategy
 IT is viewed as a competitive differentiator
 massive amounts of IT are supporting transaction processing, decision making, collaboration, and key business
processes
 business processes are modified to reduce time and costs and improve quality and flexibility
Level 2: Offensive
 IT is viewed as a point of leverage rather than as a competitive differentiator
 networks of PCs and servers are proliferating in the organization
 organization is committed to capturing IT benefits

Level 3: Defensive
 IT growth is controlled to less than rate of business growth
 IT investments follow general industry behaviour

Level 4: Cost-Justified
 tight control is maintained over IT
 technology platforms and applications are aging
 ROI evaluations are done only at the project level
 no overall technology deployment plan exists

Level 5: Controlled
 IT is viewed as expense
 management is unwilling to invest in computing

How a business may

view and employ IT
Breaking Business Barriers

Geographic
Time
Barriers
Barriers

Breaking
Business
Barriers
with IT

Cost
Structural
Barriers
Barriers

The Value Chain and Strategic IS
Administrative Coordination and Support Services
SIS: Collaborative Work Systems
Support Processes

Human Resources Management

SIS: Employee Skills Database Systems

Technology Development
SIS: Computer-Aided Engineering and Design

Procurement of Resources
SIS: Electronic Data Interchange with Suppliers
Competitive
Advantage
Inbound
Operations Outbound
Primary Business

Logistics Marketing Customer

Logistics
and Sales Service
Processes

SIS:
SIS:
Computer- SIS: Online
Automate SIS: SIS: Help
Aided Point-of-
d Just-in- Interactive Desk
Flexible Sale and
Time Targeted Expert
Manufactur Order
Warehousi Marketing System
ing. Processing
ng

Value chain of a firm


Reengineering Business
Processes
Business Improvement Business
Reengineering
Definition  Incrementally improving  radically redesigning
existing processes business processes

Target  Any process  Strategic business

processes

Primary Enablers  IT and work  IT and organization

simplifications redesign

Potential Payback  10 to 50% improvements  10-fold improvements

What Changes?  same jobs, just more  big job cuts, new jobs,
efficient major job redesign

Risk of Failure and  low  high

Level of Description

How business process reengineering

differs from business improvement
 Competitive Strategies & the Role of IT
(continued)
• Differentiation
– Create a positive difference between your products/services & the
competition.
– May allow you to reduce a competitor’s differentiation advantage.
- May allow you to serve a niche market.
Cost Leadership
- Become a low cost producer of product and services in the industry
- Also, find ways to help its suppliers or customers reduce their cost
or to increase the cost of their competitor
• Innovation
– New ways of doing business
• Unique products or services
• New ways to better serve customers
• Reduce time to market
• New distribution models
Competitive Strategies & the Role of IT
(continued)
• Growth
– Expand production capacity
– Expand into global markets
– Diversify
– Integrate into related products and services.
• Alliance
– Broaden your base of support
• New linkages
– Mergers, acquisitions, joint ventures, “virtual companies”
– Marketing, manufacturing, or distribution agreements.
Competitive Strategies & the Role of IT
(continued)
• Other Competitive Strategies
– Locking in customers or suppliers
• Build value into your relationship
• Ex: Wal-Mart extended networks to customers and suppliers
in order to build innovative relationships that would lock
in their business
– Creating switching costs
Ex: SABRE ( American Airlines) and APOLLO ( United Airlines)
used by travel agents for computerized airline reservation
* a strategic weapon for providers to have a major
competitive advantage –source of revenue and a new line
of information products
* extended these systems on the internet
Competitive business strategy
Raising barriers to entry:
* to delay or discourage competitors to enter a market
Ex: Merrill Lynch- cash management account – made large
investments in IT, along with a ground breaking alliance with
BankOne they became the first securities brokers to offer a credit
line, checking accounts, visa credit cards and automatic investment
in a money market fund, all in one account– gave them major
competitive advantage for several years before their rivals could
develop the IT capability to offer similar services on their own
Leveraging a strategic IT platform: - investing in IT enables a firm to
build a strategic IT platform that allows it to take advantage of
strategic opportunities. In many cases this results when a company
invests in advanced computer based IS to improve their efficiency of
its own business processes. Armed with this technology platform the
firm can leverage investments in IT by developing new products and
services that would not be possible without a strong IT capability
Breaking Business Barriers (contd)
* Breaking time barriers: Producers who deliver their products and
services in real time relative to their competitors will have a strategic
advantage
Ex: Toyoto Motor Corp. – use computers and telecom networks
for interval reductions and Just In Time operations resulting in a
significant strategic advantage
In early 1980s Toyoto took 2 days to manufacture a car and took
25 to 30 days to process customer’s order for a car – it was costing
more to process than to produce a car and now it takes just 2 days
to deliver the car
* Breaking geographic barriers: Companies operate from several
locations and do business at regional, national and global markets
Internet, Intranets, Extranets and other telecom and computing
technologies make it possible to distribute key business activities to
where they are most needed, where they are best performed, or
where they best support the competitive advantage of a business
 The Value Chain
• Views a firm as a series, chain, or network of activities that add
value to its products and services.
– Improved administrative coordination
– Training
– Joint design of products and processes
– Improved procurement processes
– JIT inventory
– Order processing systems
Strategic Uses of IT
• Business Process Reengineering (BPR)
– Rethinking & redesign of business processes
– Combines innovation and process improvement
– There are risks involved.
– Success factors
• Organizational redesign
• Process teams and case managers
• Information technology
• Improve business quality
– Total Quality Management (TQM)
• Quality from customer’s perspective
• Meeting or exceeding customer expectations
• Commitment to:
– Higher quality
– Quicker response
– Greater flexibility
– Lower cost
Strategic Uses of IT (continued)
• Becoming agile
– Four basic strategies
• Customers’ perception of product/service as solution to
individual problem
• Cooperate with customers, suppliers, other companies
(including competitors)
• Thrive on change and uncertainty
• Leverage impact of people and people’s knowledge
The virtual company
Uses IT to link people, assets, and ideas
Forms virtual workgroups and alliances with business
partners
Inter-organizational information systems
Share infrastructure & risk with alliance partners
Link complementary core competencies
Reduce concept-to-cash time through sharing

Becoming

an Agile Competitor

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The Fundamental
Strategies of Agile
Competition
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The four fundamental strategies

of agile competition
The Virtual Company (continued)
– Strategies (continued)
• Increase facilities and market coverage
• Gain access to new markets and share market or customer
loyalty
• Migrate from selling products to selling solutions

Learning Organizations
Exploit two kinds of knowledge
• Explicit
• Tacit
Virtual
 Company Strategies

1 Adaptability Able to adapt to a diverse, fast-changing business
environment

2 Opportunism Created, operated, and dissolved to exploit business

opportunities when they appear

3 Excellence Possess all-star, world-class excellence in the core

competencies that are needed

4 Technology Provide world-class information technology and other

required technologies in all customers solutions

5 Borderless Easily and transparently synthesize the competencies

and resources of business partners into integrated
customer
6 Trust-Based Members are trustworthy and display mutual trust in
solutions
their business relationships

Six basic characteristics

of successful virtual
companies
Strategic
 Information Management

Changes in the Innovative Potential of Changes in the
Competitive Situation I & C Technology Competitive Situation
 Internationalization of  New Products  Attitude toward
Markets Environment
 Process Innovation
 Innovative Dynamics  Age Demographics of
 New Forms of
with Products and Employees
Cooperation and Division
Process
of Labour  Buyer Behaviour
 Buyer Markets  Virtual Firms  Quality Demands on the
 Globalization of Work Place
Purchasing
 Demographic
Developments
 Resources Decreases
Challenges for the Firm

Firms and Markets

 Dissolution of
Hierarchies
 Symbioses and
Cooperation
 Electronic Markets
 Virtual Firms

Potential for innovation, competitive

markets and innovative strategies
Source: Wigand / Picot / Reichwald, 1997,
p. 3

Strategic Information Management
• Informatics concerns to all Horizons of Management

Strategic Management  Development of Strategies for

Companies

Tactical Management  Management of Achievements

and Costs

Operative Management  Steering of Settlement of

Businesses
 Project Management

Operative Settlement  Settlement of Businesses

 Realization of Projects

Horizons of management
Source: Adler, 1988

Strategic Information Management

high
Efficient Use IP

Strategic Meaning of existing

mono-functional IP Systems
of IP Leadership
essential for essential for
Efficiency of strategic
Companies Position
(Factory) (Weapon)
Use of IP Strong
not Influence
decisive of IP to
Conditions
of
Competitio
low

(Assistanc (Breakthrou
e) n to gh)
be
expected
low high
Strategic Meaning of an
Integration of IP Systems

The role of information processing depends

on its current and future strategic meaning
Source: ADL
Strategic Information Management

 Strategic Meaning
Use of Information Strategic Factory Breakthrough
Processing Weapon
 Provision of new  Banks  Data Bases  Trades
products and/or services  Publishers  Assurances

 Improvement of  Banks  Assurances  Medium

coordination of  Airlines  Decentralize Size
achievements  Trades d Companies Enterprises
 Transport of the
Sector Producing
 Improvement of market  Banks  Trades
Industry
 Medium
sound Settlement  Airlines  Assurances Size
 Public Admin.  Services Enterprises
 Improvement of  Car Industry  Facility  Services
operative efficiency  Mech. Industry
Engineering  Chem.
 Use of new technical  Car Industry  Metal
Industry
systems  Consumers’ Processing
Electronics Industry

Trade Dependencies of the Strategic Meaning of

Information Processing
Source: ADL

Strategic Information Management
Corporate Strategic Plan
Link business and IT
strategy
Performance Business Unit Strategic
Evaluation Plans
Assess business impact Formulate IT strategic plans and
Check that goals have goals
been met Ensure alignment with business
Decide compensation units plans

Business Unit Operating

Corporate Operating
Plans
Plans
Determine IT budget
Identify corporate or cross-
Identify project ideas
business unit projects
Develop business cases
Prioritze and finalize list of
project Prioritize Projects
Reconcile proposed funding
levels with business unit budget
targets
Integration of IT and business planning
Learning Organizations (continued)
• Knowledge Management
Learning Organizations (continued)
• Knowledge management systems
– Help create, organize, and share business knowledge
wherever and whenever needed within the organization