Chapter 2

Competing with
Information Technology

McGraw-Hill/Irwin ©2008,The McGraw-Hill Companies, All Rights Reserved

 Learning Objectives

1. Identify basic competitive strategies and explain

how a business can use IT to confront the
competitive forces it faces.
2. Identify several strategic uses of IT and give
examples of how they give competitive
advantages to a business.
3. Give examples of how business process
reengineering frequently involves the strategic
use of IT.

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 Learning Objectives

4. Identify the business value of using Internet

technologies to become an agile competitor or to
form a virtual company.
5. Explain how knowledge management systems
can help a business gain strategic advantages.

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 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.
• A strategic information system is
– Any kind of information system
– That uses IT to help an organization
• Gain a competitive advantage
• Reduce a competitive disadvantage
• Or meet other strategic enterprise objectives

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Competitive Forces and Strategies

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 Competitive Forces

• If a business wants to succeed must develop

strategies to counter these forces:
– Rivalry of competitors within its industry
– Threat of new entrants into an industry and its markets
– Threat posed by substitute products which might capture
market share
– Bargaining power of customers
– Bargaining power of suppliers

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 Five Competitive Strategies

• Cost Leadership
– Become low-cost producers
– Help suppliers or customers reduce costs
– Increase cost to competitors
– Example, Priceline uses online seller bidding so buyer sets
the price
• Differentiation Strategy
– Develop ways to differentiate a firm’s products from its
competitors
– Can focus on particular segment or niche of market
– Example, Moen uses online customer design 2- 7
 Competitive Strategies (cont.)
• Innovation Strategy
– Find new ways of doing business
• Unique products or services
• Or unique markets
• Radical changes to business processes to alter the fundamental
structure of an industry
– Example, Amazon uses online full-service customer systems
• Growth Strategy
– Expand company’s capacity to produce
– Expand into global markets
– Diversify into new products or services
– Example, Wal-Mart uses merchandise ordering by global satellite
tracking
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 Competitive strategies (cont.)

• Alliance Strategy
– Establish linkages and alliances with
• Customers, suppliers, competitors, consultants and other
companies
– Includes mergers, acquisitions, joint ventures, virtual
companies
– Example, Wal-Mart uses automatic inventory
replenishment by supplier

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 Using these strategies

• The strategies are not mutually exclusive

• Organizations use one, some or all

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Using IT for these strategies

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 Other competitive strategies

• Lock in customers and suppliers

– And lock out competitors
– Deter them from switching to competitors
– Build in switching costs
– Make customers and suppliers dependent on the use of
innovative IS
• Barriers to entry
– Discourage or delay other companies from entering market
– Increase the technology or investment needed to enter

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 Other competitive strategies (cont.)

• Include IT components in products

– Makes substituting competing products more difficult
• Leverage investment in IT
– Develop new products or services not possible without IT

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 Customer-focused business

• What is the business value in being customer-

focused?
– Keep customers loyal
– Anticipate their future needs
– Respond to customer concerns
– Provide top-quality customer service
• Focus on customer value
– Quality not price has become primary determinant of value

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 How can we provide customer value?

• Track individual preferences

• Keep up with market trends
• Supply products, services and information anytime,
anywhere
• Provide customer services tailored to individual
needs
• Use Customer Relationship Management (CRM)
systems to focus on customer

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Building customer value using the Internet

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 Value Chain

• View the firm as a chain of basic activities that add

value to its products and services
• Activities are either
– Primary processes directly related to manufacturing or
delivering products
– Support processes help support the day-to-day running of
the firm and indirectly contribute to products or services
• Use the value chain to highlight where competitive
strategies can best be applied to add the most
value
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Using IS in the value chain

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 Business Process Reengineering

• Called BPR or Reengineering

– Fundamental rethinking and radical redesign
– Of business processes
– To achieve improvements in cost, quality, speed and
service
• Potential payback high
• Risk of failure is also high

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How BPR differs from business
improvement

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A cross-functional process

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Reengineering order management

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 Agility

• Agility is the ability of a company to prosper

– In a rapidly changing, continually fragmenting
– Global market for high-quality, high-performance,
customer-configured products and services
• An agile company can make a profit with
– Broad product ranges
– Short model lifetimes
– Mass customization
• Individual products in large volumes

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 Four strategies for agility

An agile company:
• Provides products as solutions to their customers’
individual problems
• Cooperates with customers, suppliers and
competitors to bring products to market as quickly
and cost-effectively as possible
• Organizes so that it thrives on change and
uncertainty
• Leverages the impact of its people and the
knowledge they possess
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How IT helps a company be agile

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 Virtual Company

• A virtual company uses IT to link

– People,
– Organizations,
– Assets,
– And ideas
• Creates interenterprise information systems
– to link customers, suppliers, subcontractors and
competitors

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A virtual company

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Strategies of virtual companies

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 Knowledge Creation

• Knowledge-creating company or learning

organization
– Consistently creates new business knowledge
– Disseminates it throughout the company
– And builds in the new knowledge into its products and
services

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 Two kinds of knowledge

• Explicit knowledge
– Data, documents and things written down or stored on
computers
• Tacit knowledge
– The “how-to” knowledge which reside in workers’ minds
• A knowledge-creating company makes such tacit
knowledge available to others

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 Knowledge issues

• What is the problem with organizational knowledge

being tacit?
• Why are incentives to share this knowledge
needed?

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Knowledge management techniques

Source: Adapted from Marc Rosenberg, e-Learning: Strategies for Delivering Knowledge in the Digital Age
(New York: McGraw-Hill, 2001), p.70. 2- 32
 Knowledge management systems (KMS)

• KMS manage organizational learning and business

know-how
• Goal:
– Help knowledge workers to create, organize, and make
available knowledge
– Whenever and wherever it’s needed in an organization

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 Case 1: FedEx Corporation: Investing in
IT for Competitive Advantage
• FedEx and many other companies know that proper
management and use of information technology can give
them a competitive advantage.
• Their IT has to connect 39 hubs around the world with 677
airplanes, over 90,000 vehicles, and more than 200,000
employees delivering 6 million packages a day in 220
countries.
• FedEx spends more than $1 billion on IT every year.
• FedEx focuses more on revenue generating, customer
satisfying technology than operational technology.
• FedEx is more of a innovator than a follower in IT
applications.
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 Case Study Questions

1. How do the IT investment strategies and focus of

FedEx and its main competitor UPS differ? Which
company has the better strategy? Why?
2. Is FedEx’s “move, communicate, and shoot” IT
strategy a good one for its competitive battle with
UPS? Why or why not? Is it a good model of
competitive IT strategy for other types of
companies? Defend your position.

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 Case Study Questions

3. FedEx CIO Carter says his company is in the

business of engineering time. Is this a good
business vision for FedEx? Why or why not? How
vital is IT to this definition of FedEx’s business?
Use examples from the case to illustrate your
answer.

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 Real World Internet Activity

1. Use the Internet to compare the current status of

FedEx, UPS, and DHL in terms of revenue,
profitability, parcels delivered, and other
measures of business success. Who is winning
the competitive battle? Why?
– Check out what business commentators and financial
analysts are reporting on the Web to help you answer.

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 Real World Group Activity

2. Use the Internet to discover more about how

FedEx is involved in fighting the war on terror,
beyond what is reported in this case.
– For example, FedEx has made some controversial
disclosures of customer information to intelligence
agencies.
– Discuss FedEx’s corporate responsibility to assist in the
war on terror while protecting the privacy of its
customers, as well as any other issues uncovered in
your research.

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 Case 2: GE Energy and GE Healthcare:
Using IT to Create Strategic Customer
Relationships
• Networking and data storage & analysis
technologies enable companies like GE to gain
a competitive advantage by providing unique
products and services to their customers.
• This strategic investment in IT has a dramatic
effect on the profitability of GE’s services.
• The strategic business partnership results in a
longer-term relationship than traditional
methods.
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 Case Study Questions

1. What are the business benefits of using

information technology to build strategic customer
relationships for GE Energy and GE Healthcare?
What are the business benefits for their
customers?
2. What strategic uses of information technology
discussed in this chapter and summarized in
Figures 2.3 and 2.5 do you see implemented in
this case? Explain the reasons for your choices.

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 Case Study Questions

3. How could other companies benefit from the

use of IT to build strategic customer
relationships? Provide or propose several
examples of such uses. Explain how each
benefits the business and its customers.

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 Real World Internet Activity

1. Use the Internet to discover if GE Energy and GE

Healthcare are expanding or strengthening their uses of IT
to build strategic customer relationships. What benefits are
they gaining for themselves and claiming for their
customers?
2. Use the Internet to discover other companies whose
products are networked, monitored, diagnosed, and
managed at customers’ sites like the GE companies in this
case. Alternatively, choose other companies you can
research on the Internet and propose several ways they
could implement and benefit from similar uses of
information technology.
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 Real World Group Activity

3. What business control and security concerns

might a business customer have with the extent
of its dependency on GE for the use and
maintenance of assets that are vital to the
operation of the business?
– Discuss the rationale for these concerns and what
measures both the business and GE could take to
reduce any security threats and improve a customer’s
secure control of the business assets it obtains from GE.

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 Case 3: GE, Dell, Intel, GM, and
Others: Debating the Competitive
advantage of IT
Does IT matter?
• No:
– Nicholas Carr argues that IT is infrastructure like electricity
– Too commonplace to get competitive advantage
• Yes:
– IT is not just networks and computers
– The important part is the software and information and how
IT is used
– For Wal-Mart, GE, Dell, and many other companies, IT is a
huge advantage and will continue to be.
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 Case Study Questions
1. Do you agree with the argument made by Nicholas Carr to
support his position that IT no longer gives companies a
competitive advantage? Why or why not?
2. Do you agree with the argument made by the business
leaders in this case in support of the competitive advantage
that IT can provide to a business? Why or why not?
3. What are several ways that IT could provide a competitive
advantage to a business? Use some of the companies
mentioned in this case as examples. Visit their Web sites
to gather more information to help you answer.

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 Real World Internet Activity

1. Nicholas Carr’s article created a storm of debate

that is still raging. Using the Internet, see if you
can find Carr’s original article. Also, try to find
some more opinions for and against Carr’s
arguments beyond those provided in the case.

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 Real World Group Activity

2. The core of Carr’s arguments has some

significant implications for businesses. Discuss
your opinion of Carr’s arguments. What are some
of the implications of the argument that come to
mind? How might they serve to change the way
we use computers to support corporate strategy?

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