Chapter 02

Examine the role of Information

Technology in Business
Strategic IT
n Technology is no longer an afterthought in
business strategy, but the cause and driver
n IT can change the way businesses compete
n A strategic information system is any
information system that uses IT to help an
organization…
¨ Gain a competitive advantage
¨ Reduce a competitive disadvantage
¨ Or meet other strategic enterprise objectives

https://www.technologyreview.com/10-
breakthrough-technologies/2020/ 2
Competitive Forces
n To succeed, a business must develop strategies
to counter these forces…
¨ Rivalry of competitors within its industry
¨ New entrants into an industry and its markets
¨ Substitute products that may capture market
share
¨ Bargaining power of customers
¨ Bargaining power of suppliers

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Competitive Forces and Strategies

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Five Competitive Strategies
n Cost Leadership
¨ Become low-cost producers
¨ Help suppliers or customers reduce costs
¨ Increase cost to competitors
n Example: Priceline uses online seller bidding
so the buyer sets the price
n Differentiation Strategy
¨ Differentiate a firm’s products from its
competitors’
¨ Focus on a particular segment or niche of
market
n Example: Moen uses online customer design
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Competitive Strategies (cont’d)
n Innovation Strategy
¨ Unique products, services, or markets
¨ Radical changes to business processes
n Example: Amazon’s online, full-service
customer systems
n Growth Strategy
¨ Expand company’s capacity to produce
¨ Expand into global markets
¨ Diversify into new products or services
n Example: Wal-Mart’s merchandise
ordering via global satellite tracking
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Competitive Strategies (cont’d)
n Alliance Strategy
¨ Establish linkages and alliances with
customers, suppliers, competitors,
consultants, and other companies
¨ Includes mergers, acquisitions, joint ventures,
virtual companies
n Example: Wal-Mart uses automatic
inventory replenishment by supplier

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 Using Competitive Strategies
n These strategies are not mutually exclusive
¨ Organizations use one, some, or all
¨ A given activity could fall into one or more
categories of competitive strategy
n Not everything innovative serves to differentiate
one organization from another
¨ Likewise, not everything that differentiates
organizations is necessarily innovative

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Ways to Implement Basic Strategies

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Other Competitive Strategies
n Lock in Customers and Suppliers
¨ Deter them from switching to competitors
n Build in Switching Costs
¨ Make customers and suppliers dependent on the use of
innovative IS
n Erect Barriers to Entry
¨ Discourage or delay other companies from entering the
market
¨ Increase the technology or investment needed to enter
n Build Strategic IT Capabilities
¨ Take advantage of strategic opportunities when they arise
¨ Improve efficiency of business practices
n Leverage Investment in IT
¨ Develop products and service that would not be possible
without a strong IT capability
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Customer-Focused Business
n 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
n Focus on customer value
¨ Quality, not price, has become the primary
determinant of value
¨ Consistently

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Providing Customer Value
n Companies that consistently offer the best value
from the customer’s perspective…
¨ Track individual preferences
¨ Keep up with market trends
¨ Supply products, services, and information
anytime, anywhere
¨ Tailor customer services to the individual
¨ Use Customer Relationship Management
(CRM) systems to focus on the customer

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Building Customer Value via the
Internet

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The Value Chain and Strategic IS
n View the firm as a chain of basic activities that
add value to its products and services
¨ Primary processes directly relate to
manufacturing or delivering products
¨ Support processes help support the day-to-
day running of the firm and indirectly
contribute to products or services
n Use the value chain to highlight where
competitive strategies will add the most value

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Using IS in the Value Chain

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Strategic Uses of IT
n A company that emphasizes strategic business
use of IT would use it to gain a competitive
differentiation
¨ Products
¨ Services
¨ Capabilities

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Reengineering Business Processes
n Called BRP or simply Reengineering
¨ Fundamental rethinking and radical redesign
of business processes
¨ Seeks to achieve improvements in cost,
quality, speed, and service
n Potential payback is high, but so is risk of
disruption and failure
n Organizational redesign approaches are an
important enabler of reengineering
¨ Includes use of IT, process teams, case
managers
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BPR Versus Business Improvement

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The Role of IT
n IT plays a major role in reengineering most
business processes
¨ Can substantially increase process
efficiencies
¨ Improves communication
¨ Facilitates collaboration

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Reengineering Order Management
n IT that supports this process…
¨ CRM systems using intranets and the Internet
¨ Supplier-managed inventory systems using the
Internet and extranets
¨ Cross-functional ERP software to integrate
manufacturing, distribution, finance, and human
resource processes
¨ Customer-accessible e-commerce websites for
order entry, status checking, payment, and
service
¨ Customer, product, and order status databases
accessed via intranets and extranets
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Becoming an Agile Company
n Agility is the ability to prosper
¨ In rapidly changing, continually fragmenting
global markets
¨ By selling high-quality, high-performance,
customer-configured products and services
¨ By using Internet technologies
n An agile company profits in spite of
¨ Broad product ranges
¨ Short model lifetimes
¨ Individualized products
¨ Arbitrary lot sizes
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Strategies for Agility
n An agile company…
¨ Presents products as solutions to customers’
problems
¨ Cooperates with customers, suppliers and
competitors
¨ Brings products to market as quickly and cost-
effectively as possible
¨ Organizes to thrive 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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Creating a Virtual Company
n A virtual company uses IT to link…
¨ People
¨ Organizations
¨ Assets
¨ Ideas
n Inter-enterprise information systems link…
¨ Customers
¨ Suppliers
¨ Subcontractors
¨ Competitors

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A Virtual Company

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 Virtual Company Strategies
n Basic business strategies
¨ Share information and risk with alliance partners
¨ Link complimentary core competencies
¨ Reduce concept-to-cash time through sharing
¨ Increase facilities and market coverage
¨ Gain access to new markets and share market
or customer loyalty
¨ Migrate from selling products to selling solutions

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Building a Knowledge-Creating
Company
n A knowledge-creating company or learning
organization…
¨ Consistently creates new business
knowledge
¨ Disseminates it throughout the company
¨ Builds it into its products and services

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Two Kinds of Knowledge
n Explicit Knowledge
¨ Data, documents, and things written down or
stored in computers
n Tacit Knowledge
¨ The “how-to” knowledge in workers’ minds
¨ Represents some of the most important
information within an organization
n A knowledge-creating company makes
such tacit knowledge available to others

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Knowledge Management
n Successful knowledge management
¨ Creates techniques, technologies, systems,
and rewards for getting employees to share
what they know
¨ Makes better use of accumulated workplace
and enterprise knowledge

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Knowledge Management
Techniques

Chapter 2 Competing with Information Technology 30

Knowledge Management Systems
n Knowledge management systems (KMS)
¨ A major strategic use of IT
¨ Manages organizational learning and know-how
¨ Helps knowledge workers create, organize, and
make available important knowledge
¨ Makes this knowledge available wherever and
whenever it is needed
n Knowledge includes
¨ Processes, procedures, patents, reference
works, formulas, best practices, forecasts, and
fixes
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Evolution of IT infrastructure
– General-purpose mainframe and minicomputer era:
1959 to present
• 1958: IBM first mainframes introduced
• 1965: Less expensive DEC minicomputers introduced
– Personal computer era: 1981 to present
• 1981: Introduction of IBM PC
• Proliferation in 80s, 90s resulted in growth of personal
software
– Client/server era: 1983 to present
• Desktop clients networked to servers, with processing
work split between clients and servers
• Network may be two-tiered or multitiered (N-tiered)
• Various types of servers (network, application, Web)32
Evolution of IT infrastructure
– Enterprise computing era: 1992 to present
• Move toward integrating disparate networks,
applications using Internet standards and enterprise
applications
– Cloud and mobile computing: 2000 to present
• Cloud computing: computing power and software
applications supplied over the Internet or other
network
– Fastest growing form of computing

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Evolution of IT infrastructure
Technology drivers of infrastructure evolution
– Moore’s law and microprocessing power
• Computing power doubles every 18 months
•Nanotechnology:
– Shrinks size of transistors to size comparable
to size of a virus
– Law of Mass Digital Storage
• The amount of data being stored each year doubles

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Moore’s Law and Microprocessor
Performance

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Falling Cost of Chips

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The Cost of Storing Data Declines Exponentially
1950–2012

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Evolution of IT infrastructure
Technology drivers of infrastructure evolution
– Metcalfe’s Law and network economics
• Value or power of a network grows exponentially as a
function of the number of network members.
• As network members increase, more people want to
use it (demand for network access increases).

– Declining communication costs and the Internet

• An estimated 3 billion people worldwide have Internet
access.
• As communication costs fall toward a very small
number and approach zero, utilization of communication
and computing facilities explodes. 38
Exponential declines in Internet Communications
Costs

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Evolution of IT infrastructure
Technology drivers of infrastructure evolution
evolution (cont.)
– Standards and network effects
• Technology standards:
– Specifications that establish the compatibility of
products and the ability to communicate in a network
– Unleash powerful economies of scale and result in
price declines as manufacturers focus on the products
built to a single standard

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IT infrastructure Components

IT Infrastructure has seven main components

1. Computer hardware platforms
2. Operating system platforms
3. Enterprise software applications
4. Data management and storage
5. Networking/telecommunications platforms
6. Internet platforms
7. Consulting system integration services

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IS in the Organization
Features of organizations
• Use of hierarchical structure
• Accountability, authority in system of impartial
decision making
• Adherence to principle of efficiency
• Routines and business processes
•Organizational politics, culture, environments,
and structures

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