Competing with Information Technology

Section I:  Fundamentals of Strategic Advantage

STRATEGIC IT

Information systems must be viewed as more than a set of technologies that support efficient business operations, workgroup and enterprise collaboration, or effective business decision-making.  Information technology can change the way businesses compete.  For this reason, you should view information systems strategically, that is, as vital competitive networks, as a means of organizational renewal, and as a necessary investment in technologies that help a company adopt strategies and business processes that enable it to reengineer or reinvent itself in order to survive and succeed in today’s dynamic e-business environment.

COMPETITIVE STRATEGY CONCEPTS

The strategic role of information systems involves using information technology to develop products, services, and capabilities that give company major advantages over the competitive forces it faces in the global marketplace.  This creates strategic information systems, information systems that support or shape the competitive position and strategies of an e-business enterprise. So a strategic information system can be any kind of information system (TPS, MIS, DSS, etc.) that helps an organization:

·         Gain a competitive advantage

·         Reduce a competitive disadvantage

·         Meet other strategic enterprise objectives

According to Michael Porter, a firm can survive and succeed in the long run if it successfully develops strategies to confront five competitive forces that shape the structure of competition in its industry. These include

·         Rivalry of competitors within its industry

·         Threat of new entrants

·         Threat of substitutes

·         Bargaining power of customers

·         Bargaining power of suppliers

A variety of competitive strategies can be developed to help a firm confront these competitive forces.  These include

·         Cost Leadership Strategy

- Become a low-cost producer of products and services

- Find ways to help suppliers or customers reduce their costs

- Increase the costs of competitors.

·         Differentiation Strategy

-          Developing new ways to differentiate a form’s products and services from its competitors’

-          Reduce the differentiation advantages of competitors

·         Innovation Strategy       

-  Find new ways of doing business:

  a) Develop of unique products and services

  b) Enter into unique markets or marketing niches

  c) Establish new business alliances

  d) Find new ways of producing products/services

  e) Find new ways of distributing products/services

·         Growth Strategies

- Significantly expand the company’s capacity to produce goods and services

- Expand into global markets

- Diversify into new products and services

- Integrate into related products and services

·         Alliance Strategies

- Establish new business linkages and alliances with customers, suppliers, competitors, consultants and other companies (mergers, acquisitions, joint ventures, forming virtual companies, etc.).

STRATEGIC USES OF INFORMATION SYSTEMS

How can the preceding competitive strategy concepts be applied to the strategic role of information systems?  Information technology can be used to implement a variety of competitive strategies.  These include the five basic competitive strategies (differentiation, cost, innovation, growth, and alliance), as well as other ways that companies can use information systems strategically to gain a competitive edge.  For example:

·         Lower Costs

·         Differentiate

·         Innovate

·         Promote Growth

·         Develop Alliances

Other Competitive Strategies

Several key strategies that are implemented with information technology include:

·         Locking in customers or suppliers - Building valuable relationships with customers and suppliers, which deter them from abandoning a firm for its competitors or intimidating it into accepting less profitable relationships.

·         Building switching costs – the costs in time, money, effort, and inconvenience that it would take a customer or supplier to switch its business to a firm’s competitors.

·         Raising barriers to entry – technological, financial, or legal requirements that deter firms from entering an industry.

·         Leveraging investment in information technology – developing new products and services that would not be possible without a strong IT capability.

THE VALUE CHAIN AND STRATEGIC IS 

An important concept that can help a manager identify opportunities for strategic information systems is the value chain concept as developed by Michael Porter.  This concept:

·         Views a firm as a series or "chain” of basic activities that add value to its products and services and thus, add a margin of value to the firm.

·         Some business activities are viewed as primary activities, and others are support activities.  This framework can highlight where competitive strategies can best be applied in a business.

·         Managers and business professionals should try to develop a variety of strategic uses of Internet and other technologies for those activities that add the most value to a company’s product or services, and thus to the overall business value of the company.

Value Chain Examples:

Collaborative workflow internet-based systems can increase the communications and collaboration needed to dramatically improve administrative coordination and support services.  Examples of support processes:

·         Career development intranet can help the human resources management function provides employees with professional development training programs.

·         Computer-aided engineering and design extranets enable a company and its business partners to jointly design products and processes.

·         Extranets can dramatically improve procurement of resources by providing an online e-commerce web site for a firm’s suppliers.

Examples of primary processes:

·         Automated just-in-time warehousing systems to support inbound logistic processes involving storage of inventory, computer-aided flexible manufacturing (CAM) systems for manufacturing operations, and online point-of-sale and order processing systems to improve outbound logistics processes that process customer orders.

·         Support of marketing and sales processes by developing an interactive targeted marketing capability on the Internet and its World Wide Web.

·         Customer service can be dramatically improved by a coordinated and integrated customer relationship management system.