BSIE_IIS - LECTURE 02.pdf

INDUSTRIAL INFORMATION SYSTEMS

COMPETING WITH

INFORMATION TECHNOLOGY

Learning Objectives

Identify several basic competitive strategies and explain how they can use information technologies to confront

the competitive forces faced by a business.

Identify several strategic uses of information technology for electronic business and commerce, and

give examples of how they give competitive advantages

to business.

Give examples of how business process reengineering frequently involves the strategic use of e-business

technologies.

Identify the business value of using e-business technologies for total quality management, to become an agile competitor, or to form a virtual company.

Explain how knowledge management systems can help a business gain strategic advantages.

The Competitive Environment

Threat of New

Entrants

Rivalry Among Existing

Competitors

Bargaining Power of Customers

Bargaining Power of Suppliers

Threat of Substitutes


A firm can survive in the long run if it successfully develops strategies to confront five generic competitive forces that operate in the firm's relevant environment. As illustrated on the slide these forces include:

Threat of New Entrants. Many threats to long run survival come from companies that do not yet exist or have a presence in a given industry or market. The threat of new entrants forces top management to monitor the trends, especially in technology, that might give rise to new competitors.

Bargaining Power of Suppliers. Suppliers with access to key or limited resources, or who dominate their industries, may exert undue influence on the firm. Many firms seek to reduce their dependence on a single firm to limit the suppliers' bargaining power.


Rivalry Among Existing Firms. In mature industries, existing competitors are not much of the threat: typically each firm has found its "niche". However, changes in management, ownership, or "the rules of the game" can give rise to serious threats to long term survival from existing firms.

Bargaining Power of Customers. Customers can grow large and powerful as a result of their market share. For example, Wal-Mart is the largest customer for consumer package goods and often dictates terms to the makers of those goods -- even a giant like Procter & Gamble.

Threat of Substitutes. To the extent that customers can use different products to fulfill the same need, the threat of substitutes exists.

Fundamental Competitive Strategies

Differentiation Strategies

Innovation Strategies

Growth Strategies

Alliance Strategies

Cost Leadership Strategies


Competitive Advantage is created or maintained with the company succeeds in performing some activity of value to customers significantly better than does its competition. According to Porter, competitive advantage can be developed by following one or more of these strategies:

Cost Strategies. Becoming a low-cost producer in the industry allows the company to lower prices to customers. Competitors with higher costs cannot afford to compete with the low-cost leader on price.

Differentiation Strategies. Some companies create competitive advantage by distinguishing their products on one or more features important to their customers. Unique features or benefits may justify price differences and/or stimulate demand.


Innovation Strategies. Unique products or services or changes in business processes can cause fundamental changes in the way an industry does business.

Growth Strategies. Significantly expanding production capacity, entering new global markets, diversifying into new areas, or integrating related products or services can all be a springboard to strong company growth.

Alliance Strategies. Establishing new business linkages and alliances with customers, suppliers, former competitors, consultants, and others can create competitive advantage

Strategic Uses of Information Technology

Improving

Business Process

Promote

Business Innovation

Locking in

Customers and Suppliers

Use IT to

reduce costs

of doing

business

Use IT to improve quality

Use IT to link business to

customers and

suppliers

Use IT to

create new

products or

services

Enhance

Efficiency

Create New

Business

Opportunities

Maintain Valuable

Customers and

Relationships

Strategy

IT Role

Outcome

The Value Chain

Administrative Coordination & Support Services

Human Resource Management

Technology Development

Procurement of Resources

Inbound Logistics

Operations Outbound Logistics

Marketing and

Sales

Customer Service

The Value Chain

The Value Chain Concept developed by Michael Porter views a firm as a series of basic activities (the "chain") that add value to its products and services that support a profit margin for the firm. In the value chain concept, some business activities are primary activities and others support activities. For each activity, the role of strategic information systems (SIS) can contribute significantly to that activity's contribution to the value chain:

The Value Chain

Support Activities. Support activities create the internal infrastructure that provides direction to and support for the specialized work of primary activities:

Management and Administrative Services. The key role of SIS here is in automated office systems.

Human Resources Management. SIS role: Employee Skills Database.

Technology Development. SIS role: Computer-Aided Design.

Procurement of Resources. SIS role: EDI with suppliers.

The Value Chain Primary Activities. These activities directly contribute to the

transformation process of the organization.

Inbound Logistics. SIS role: Automated Warehousing, JIT.

Operations. SIS role: Computer-Aided Manufacturing.

Outbound Logistics. SIS role: Online Data Entry.

Marketing and Sales. SIS role: Market Analysis.

Service. SIS role: Diagnostic Expert System.

The Internet Value Chain

Marketing and

Product Research

Sales and

Distribution

Support and

Customer Feedback

Data for

market

research,

establishes

consumer

responses

Access to customer com-

ments online

Immediate re-sponse to

customer

problems

Low cost distribution

Reaches new

customers

Multiplies contact points

Increase

Market Share

Lower

Cost Margins

Enhanced

Customers

Satisfaction

Internet

Capability

Benefits

to

Company

Opportunity

for

Advantage

Strategic Positioning of Internet Technologies

Global Market

Penetration

E-Commerce Website

Value-added IT Services

Product and Services

Transformation

E-Business; Extensive

Intranets and Extranets

Cost and

Efficiency

Improvements

E-Mail, Chat Systems

Performance

Improvements in

Business

Effectiveness

Intranets and Extranets

Strategy

Solution

Low

High

High E-Business Processes Connectivity

Internal Drivers


For Internet technologies to be used strategically applications must be correctly positioned. The

strategic positioning matrix shown can be used to

help a company optimize the strategic impact of

Internet Technologies.

The matrix recognizes two major drivers:

Internal Drivers. The amount of connectivity, collaboration and use of IT within a firm.

External Drivers. The amount of connectivity, collaboration and use of IT by customers,

suppliers, business partners, and competitors.


Cost and Efficiency Improvements. When there is a low amount of connectivity, collaboration and use of IT within

the company and by customers and competitors, a firm

should focus on improving efficiency and lowering costs by

using Internet technologies to enhance communications

between the company and its customers and suppliers.

Performance Improvement in Business Effectiveness. When there is a high amount of internal connectivity, but

external connectivity by customers and competitors is still

low, a firm should focus on using Internet technologies like

intranets and extranets to make major improvements in

business effectiveness.


Global Market Penetration. When there is a high degree of connectivity by customers and

competitors and low internal connectivity, a firm

should focus on developing Internet-based

applications to optimize interactions with

customers and build market share.

Product and Service Transformation. When a company and its customers, suppliers, and

competitors are extensively networked, Internet

technologies should be used to develop and

deploy products and services that strategically

reposition it in the marketplace.

Customer-Focused e-Business

Let customers place orders thru distribution partners

Transaction

Database

Link Employees and distribution partners

Let customers check order history and delivery status

Let customers place orders directly

Customer

Database

Build a community of customers, employees, and partners

Give all employees a complete view of customers


There are other key strategies enabled by IT that can be used to enable a business to become successful and to

maintain their success.

A key strategy for becoming a successful e-business is to maximize customer value. This strategic focus on

customer value recognizes that quality rather than price

becomes the primary determinant in a customers perception of value. A Customer-Focused e-business,

then, is one that uses Internet technologies to keep

customer loyal by anticipating their future needs,

responding to concerns, and providing top quality

customer service.


Such technologies like intranets, the Internet, and extranet websites create new channels for interactive communications

within a company, with customers, and with suppliers, business

partners, and others in the external business environment.

Thereby, encouraging cross-functional collaboration with

customers in product development, marketing, delivery, service

and technical support.

A successful Customer-Focused e-business attempts to own the customer's total business experience through such approaches as:

Letting the customer place orders directly, and through distribution partners

Building a customer database that captures customers' preferences and profitability, and allowing all employees access to

a complete view of each customer.

The Customer- Focused Agile Competitor

Leverage the

Impact of

People and

IS Resources

Anticipation of

future needs

Customization

Conformance Give Customers

Solutions

to Problems

Cooperate with

Business Partners

and Competitors

Organize to

Master

Change


Agility in competitive performance is the ability of a business to prosper in rapidly changing, continually

fragmenting global markets for high-quality, high-

performance, customer-configured products and services.

Agile companies depend heavily on information technology

to support and manage business processes. The four

fundamental strategies of agile competition are:

Enrich Customers. Agile companies enrich customers with solutions to their problems. Long term value-added

products and services succeed when they solve problems

based on customer needs. As conditions change, the agile

competitor establishes a relationship based on the ability

and willingness to change to meet new customer problem

situations.


Cooperate. Agile companies cooperate to enhance

competitiveness. This means internal cooperation and, where

necessary, cooperation with competitors in order to bring

products and services to market more quickly.

Organize. Agile companies organize to master change and

uncertainty. This is a key component of agile competition

because it seeks development of the anticipation and rapid

response to changing conditions, not an attempt to stifle change

itself.

Leverage People and Information. Agile companies leverage the

impact of people and information by nurturing an

entrepreneurial spirit and providing incentives to employees to

exercise responsibility, adaptability, and innovation.


The Free.Perfect.Now model developed by AVNET Marshall

embodies these principles into a succinct model for serving its

customers in the most agile and responsive way.

Free Dimension. Emphasizes that most customers want the lower

cost for value received, but are willing to pay more for a value-

added service.

Perfect Dimension. Emphasizes that products and services should

not only be defect free, but should be enhanced by customization,

added features and should further anticipate future customer

needs.

Now Dimension. Emphasizes that customers want 24x7

accessibility to products and services, short delivery times, and

consideration of the time-to-market for their own products.

VIRTUAL CORPORATIONS

Borderless

Technology

Excellence

Trust-Based

Adaptability

Opportunism

Six Characteristics

of Virtual Companies

VIRTUAL COMPANY

A Virtual Company (also called a virtual corporation or virtual organization) is an organization that uses

information technology to link people, assets, and ideas.

People and corporations are forming virtual companies in

order to take advantage of strategic opportunities that

require time, people competencies and information

technologies resources that may not exist within a single

company. By making strategic alliances with other

companies and quickly forming a virtual company of all-

star partners, the virtual company is best able to assemble

the components needed to provide a world-class solution

for customers and capture the opportunity.

To succeed the virtual company must possess six characteristics:

VIRTUAL COMPANY

Adaptability: Able to adapt to a diverse, fast-changing business environment. Virtual companies must further

reduce concept-to-cash time through sharing.

Opportunism: Created, operated, and dissolved to exploit business opportunities when they appear. They must gain

access to new markets and share market or customer

loyalty, while increasing facilities and market coverage.

Excellence: Possess all-star, world-class excellence in the core competencies that are needed. These

competencies must be seamlessly linked through the use

of Internet technologies.

VIRTUAL COMPANY

Technology: Provide world-class information technology and other required technologies in all

customer solutions. They must migrate from

selling products to selling solutions.

Borderless: Easily and transparently synthesize the competencies and resources of business

partners into integrated customer solutions.

Trust-Based: Members are trustworthy and display mutual trust in their business

relationships. They must be willing to share

infrastructures and risks.

Knowledge Management Systems

Solution

Knowledge

Development

Engineers

Technical

Support

Staff

Product

Managers Other

Vendors

Customers

The Internet

Intranet

Knowledge Management Systems

Knowledge Management has become one of the major strategic uses of information technology.

Knowledge Management Systems (KMS) are

systems that are used to manage organizational

learning and business know-how. The goal of

knowledge management systems is to help

knowledge workers create, organize, and make

available important business knowledge,

whenever, and wherever its needed.

In Summary

Information systems can play several strategic roles in business.

The Internet, intranets, extranets, and other Internet-based technologies can be used

strategically for e-business and e-commerce

that provide a competitive advantage.

A key strategic use of Internet technologies is to build an e-business which develops its

business value by making customer value its

strategic focus.

In Summary

IT is a key ingredient in reengineering business operations, by enabling radical

changes to business processes that

dramatically improve their efficiency and

effectiveness.

IT can be strategically used to improve the quality of business performance.

A business can use IT to help it become an agile company, that can respond quickly to

changes in its environment.

In Summary

Forming virtual companies has become an important competitive strategy in todays

dynamic global market.

Lasting competitive advantages today can only come from innovative use and

management of organizational knowledge

by knowledge creating companies and

learning organizations.

End of Presentation

Documents

BSIE_IIS - LECTURE 02.pdf