Chapter 2
STRATEGIC AND COMPETITIVE
OPPORTUNITIES
Using IT for Competitive Advantage
Competitive Advantage
Providing a product or service in a
way that customers value more than what the competition is able to do.
Its not the IT, it’s the People
It is not the information technology
that gives a company the competitive advantage; it is the way people use the
technology that makes the difference.
Like the car and its driver
The car is a Ferrari. The drivers are
a regular average everyday Chevrolet car driver, and a race-car driver.
Only the race-car driver can take
full advantage of the Ferrari by using the technology embodied into it more
effectively and appropriately.
The house and the Architect
To build a house to meet a certain objective
you need an Architect. To build / have an information system (IS) you need an
IS Architect that understands the business problem and the available
technologies.
Competitive Advantage Examples
t
FedEx
t
Schwabs
t
Dell
t
Cisco
Developing A Strategy For The Internet Age
t
The five forces model
t
The three generic
strategies
t
The value chain
Key E-Commerce Strategies
t
Mass customization
t
Disintermediation
t
Global reach
The U.S. Airline Industry
Competitive
Advantage Examples
Competitive Advantage Examples
Federal
Express
Competitive Advantage Examples
Federal
Express
Competitive Advantage Examples
Federal
Express
Competitive Advantage Examples
Federal
Express
Competitive Advantage Examples
Federal
Express
Figure 2.2
FedEx Package Tracking Screen
page 45
Competitive Advantage Examples
Charles
Schwab
n
Before
t Typical
brokerage business
t Call
offices
t Speak
with an agent
t Get
advice
t Make
buy/sell decisions
Competitive Advantage Examples
Charles
Schwab
n
Strategy
t
Pioneer in the discount
brokerage business
t
Target investors that are
comfortable making their own trades
t
Develop and deploy an
information system to accommodate the target investor
t
Embrace the internet as
the technology vehicle for attaining objectives
Competitive Advantage Examples
Charles
Schwab
n
Now
t Internet
brokerage service
t Buy/sell
and get information online, in real-time and 24hrs a day.
Competitive Advantage Examples
Dell
Computer
n
Before
t Dell
would sell its computers via retailers
t Buy-hold-sell
approach
"
Build computers
"
Stock computers on shelves in warehouse
"
Sell computers
t Customer
service all by telephone
Competitive Advantage Examples
Dell
Computer
n
Strategy
t Eliminate
the retail middle man and sell directly to customer
t Build
and deploy an information system for purchasing
t Use
internet as the technology vehicle to reach its customer for sales and service
Competitive Advantage Examples
Dell
Computer
n
Now
t
Sell-source-ship
"
Dell receives an order by
internet
"
Dell outsources to
initiate the construction of the computer sold
"
Dell then ships the
product
t
Top of the line automated
customer care component
Competitive Advantage Examples
Dell
Computer
n
Information
partnership - lets two or more companies cooperate by
integrating their IT systems.
Competitive Advantage Examples
Dell
Computer
Figure 2.3
Buy-hold-sell versus sell-source-ship
page 48
Competitive Advantage Examples
Cisco
Systems
n
Cisco Systems - a leader
in utilizing the direct sell model over the Internet.
n
Business to Business (B2B) - companies whose customers are primarily other businesses.
n
Business to Consumer (B2C) -companies whose customers are primarily individuals.
Developing A
Strategy For The Internet Age
n
Business people quite
often use the three frameworks of Professor Michael Porter to think about
business strategies.
n
Professor McFarland showed
how these three frameworks can also be used in coming with ideas on how information
technology can be harnessed to create a competitive advantage.
n
Professor Porter observed
that the internet provides better opportunities for companies to establish
business strategies than previous IT.
Developing A Strategy For The Internet Age
n
Porter’s three frameworks are:
t The
Five Forces model
t The
Three Generic Strategies
t The
Value Chain
Developing A Strategy For The Internet Age
The Five
Forces Model
Figure 2.4
The Five Forces Model
page 50
Developing A Strategy For The Internet Age
The Five
Forces Model
n
Five forces model -
determines the relative attractiveness of an industry.
n
This model was intended to
be used as a tool for managers to use in deciding whether they should enter a
new market or expand in the one they are already in.
Developing A Strategy For The Internet Age
The Five
Forces Model
n
Buyer power - high when
buyers have many choices of whom to buy from, and low when the choices are few.
(Less attractive market if buyer power is high)
n
Supplier power - high when buyers
have few choices of whom to buy from, and low when there are many choices.
(Less attractive market if supplier power is high)
Developing A Strategy For The Internet Age
The Five
Forces Model
n
Threat of substitute products or services - low if there are very few alternatives to using the product
or service.
t
Switching costs - costs that can make customers reluctant to
switch to another product or service. If there are switching costs then it is
an advantage to the supplier.
n
Threat of new entrants - high when it
is easy for competitors to enter the market.
n
Rivalry among existing competitors – An industry is less attractive to enter when the rivalry is
high and more attractive when it is low.
Developing A Strategy For The Internet Age
Using the
Five Forces Model
n
Buyer power
t
Giving choices to the
buyer
t
For example: hotel chains
"
Give points
"
Other loyalty programs
"
Cash the points for free
hotel stays at one of their resort hotels
t
Such programs have the
effect of increasing the likelihood that a traveler will stay at a single
chain.
Developing A Strategy For The Internet Age
Using the
Five Forces Model
n
Supplier power
t The objective is to reduce supplier power.
t How to reduce supplier power
"
B2B
marketplace - an Internet-based service which brings together
many buyers and sellers.
"
Find a way to put more information into the
buyer’s hands
Developing A Strategy For The Internet Age
Using the
Five Forces Model
n
Threat of substitute products or services
t Consider
the introduction of alternative IT products such as income tax preparation
software.
t Consumers
now use it.
t Accountant
has less clients.
t Accountant
livelihood is threatened.
Developing A Strategy For The Internet Age
Using the
Five Forces Model
n
Threat of new entrants
t
It is not a good thing
when it is very easy for others to enter into your market.
t
Companies can use IT to
develop and create barriers for others.
t
Entry barrier - a product
or service feature that customers have come to expect from companies in a
particular industry.
t
A good example is what
banks did:
"
Introduce the bank card and
as many ATMs around the world as possible.
"
Banking on the internet to
pay bills, transfer funds and print reports.
Developing A Strategy For The Internet Age
Using the
Five Forces Model
n
Rivalry among existing competitors
t Using
IT systems to be more efficient and compete more strongly with others.
t An
example would be PRICE.
"
Computer systems can be bought from two
different stores but one is cheaper than the other.
"
This is possible when one company uses IT in
such a way to reduce its price.
Developing A Strategy For The Internet Age
The Three
Generic Strategies
n
Porter says that a business should adopt
only one of the three generic strategies:
t Cost
leadership
t Differentiation
t Focused
strategy
Developing A Strategy For The Internet Age
The Three
Generic Strategies
Trying to follow more than one of these
strategies at the same time is almost always unsuccessful.
Developing A Strategy For The Internet Age
The Three
Generic Strategies
Figure 2.5
The Three Generic Strategies
page 52
Developing A Strategy For The Internet Age
Using the
Three Generic Strategies
n
Companies can use the
three generic strategies to change the basis of their competition to their
advantage.
n
If they find that they are
caught in a fierce marketplace of low pricing then they could modify their
strategy to compete of the basis of differentiation.
Developing A Strategy For The Internet Age
Using the
Three Generic Strategies
n
Amazon.com is a good example of this.
t Provides
competitive low prices
t Informative
t Easy
to navigate and
t Uses
sophisticated software to personalize the site for each individual.
Developing A Strategy For The Internet Age
The Value
Chain
Once you understand how IT can help you develop business
strategy, you can ensure that IT supports all important business processes.
Developing A Strategy For The Internet Age
The Value
Chain
n
Business process - a
standardized set of activities that accomplishes a specific task, such as
processing a customer’s order.
n
An important tool to
visualize the important processes is Porters’ value chain.
n
Value chain - views the
organization as a chain – or series – of processes, each of which adds value to
the product or service for the customer.
Developing A Strategy For The Internet Age
The Value
Chain
Figure 2.6
The Components of a Value Chain
page 54
Developing A Strategy For The Internet Age
The Value
Chain
n
Talbott (a premier necktie manufacturer in
North America) used the value chain to better meet customer demands:
t Plan
for a better way of meeting customer demands.
t Identifying
processes that add value.
t Identifying
processes that reduce value.
Developing A Strategy For The Internet Age
The Value
Chain
Figure 2.7
The Value-Added View of a Necktie
Manufacturer
page 55
Developing A Strategy For The Internet Age
The Value
Chain
Figure 2.8
The Value-Reduced View of a Necktie
Manufacturer
page 55
Key E-Commerce Strategies
n
With the Internet and the WWW, new wave of creative entrepreneurship
developed.
n
New ways were found to reach out to customers and suppliers.
n
New never have been seen business models were created.
n
A time of experimentation with some spectacular successes and failures.
Key E-Commerce Strategies
n
The main difference between the NEW and OLD economies is the
INTERNET.
n
The Internet is global.
n
The Internet is
affordable.
Key E-Commerce Strategies
n Three capabilities made
possible by the Internet should be kept in mind by companies searching for ways
to use the new economy to gain competitive advantage:
t
Mass customization and
personalization
t
Disintermediation
t
Global reach
Key E-Commerce Strategies
Mass
Customization and Personalization
n
Mass customization - a
business gives its customers the opportunity to tailor its product or service
to the customer’s specifications.
n
Personalization - a Web
site can know enough about your likes and dislikes that it can fashion offers
that are more likely to appeal to you.
n
Collaborative filtering - a method of
placing you in an affinity group of people with the same characteristics.
Key E-Commerce Strategies
Disintermediation
n
Disintermediation
– using the Internet as a delivery vehicle, intermediate
players in a distribution channel can be bypassed.
Key E-Commerce Strategies
Disintermediation
Figure 2.10
Disintermediation at Work
page 58
Key E-Commerce Strategies
Global
Reach
n
Global
reach - the ability to extend a company’s reach to customers
anywhere there is an Internet connection, and at a much lower cost.
The U.S. Airline
Industry
Airline Reservation
Systems
n
The airlines really began using IT in a
significant way when American Airlines and United Airlines introduced the first
airline reservations systems.
t SABRE
t APPOLO
The U.S. Airline Industry
Airline
Reservation Systems
n
American and United got a tremendous
competitive advantage from being the owners of the reservation systems.
t They
were very profitable
t They
had access to information on the sales volumes of their competitors
The U.S. Airline Industry
Frequent
Flyer Programs
n
Frequent flyer programs
are a great example of using IT to alter Porter’s five forces.
t
They reduced buyer power
by making it less likely a traveler would choose another airline.
t
They reduced the threat of
substitute products or services by increasing switching costs.
t
They erected entry
barriers by making a frequent flyer program a practical necessity for any
airline to compete effectively.
The U.S. Airline Industry
Yield
Management Systems
n
Yield management systems are designed to
maximize the amount of revenue that an airline generates on each flight.
n
Yield management systems are the reason
that an airfare you’re quoted over the phone can be $100 higher when you call
back an hour later.
The U.S. Airline Industry
Yield
Management Systems
Figure 2.11 The Payoff From Yield Management page 61
The U.S. Airline Industry
Disintermediating
the Travel Agent
n
Airlines realized that agents commissions
were their third-highest cost after payroll and fuel.
n
They decided to first reduce and then
eliminate travel agents commissions.
The U.S. Airline Industry
Disintermediating
the Travel Agent
n
What airlines did?
t Offered
up to 1000 frequent flyers miles to travelers that use the web for reservation.
t Toll
free 800 numbers for frequent flyers elite groups with shorter waiting times.
t Introduced
e-tickets.
The U.S. Airline Industry
Disintermediating
the Travel Agent
n
Expert surveys have estimated that the
number of travel agents in the U.S. will be sharply reduced as a result of
disintermediation.
The U.S. Airline Industry
Utilizing
Emerging Technologies
n
Permission
marketing -
when you have given a merchant your permission to send you special offers.
Summing It Up
n
Important considerations
you should keep in mind as you work to bring an IT competitive advantage to your
organization include:
t
Be efficient and
effective.
t
Competition is all around
you.
t
Push the state-of-the-art.
t
IT competitive advantages
are only temporary.
Summing It Up
Closing Case Study One
GM Tries
to Lure Customers with OnStar
n
GM added an in-car cellular service,
OnStar, to update its image and increase sales.
n
Did the OnStar system give GM a competitive
advantage?
Closing Case Study Two
Speedpass:
Throw Away Your Plastic?
n
Speedpass offers a short
plastic cylinder, called a Key Tag, that transfers customer billing information
automatically.
n
Speedpass is an
alternative to a credit card.
n
How is Speedpass an
example of a first mover?
Summary
Student
Learning Outcomes
n
Describe how the creative
use of information technology can give an organization a competitive advantage.
n
Demonstrate how to
generate ideas for using information technology in innovative ways, and apply
tools that can help.
n
Describe how e-commerce
technologies “up the stakes” and give organizations even more opportunities.
Summary
Student
Learning Outcomes
n
Summarize how one specific industry has
consistently used information technology for competitive advantage.
n
Describe how to use information technology
for competitive advantage in an organization.
Summary
Assignments
& Exercises
n
Evaluating telemedicine
n
Comparing parcel delivery services
n
Disintermediation in the travel agent
industry
Real Hot
Electronic Commerce
Ordering
Products On The Internet
n
Books and music
n
Clothing and accessories
n
Internet auction houses
n
Automobiles
n
Auction houses
n
Books and music
n
Clothing and accessories
n
Computers
n
Automobiles