Competing with Information

Technology
How can a business use IT to compete?
Competitive strategies and forces
 Information System Strategy Triangle

Strategy Triangle
Business (Firm) Where is the business
Strategy going and why?
ss IT
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sin pa
r bu ess ct
fo i n an
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ti on s bu po
re c o rt ten
Di pp ti al
Su

Needs and priorities

Organizational Strategy IS/IT Strategy
Infrastructure and
services
What is required? How it can be delivered?
 Information System Strategy Triangle

• A business strategy is a well-articulated

vision of where the business seeks to go and
how it expects to get there.
• An organizational strategy is the
organization’s design, as well as the choices
it makes to define, set up, coordinate, and
control its work processes.
• IS strategy is the plan the organization uses
in providing information systems and
services.
BRIEF OVERVIEW OF
ORGANIZATIONAL
STRATEGIES
 An Organizational strategy is:
• The organization’s design, as well as the
choices it makes to define, set up, coordinate,
and control its work processes
• A plan that answers the question:’ How will the
company organize on order to achieve it goals
and implement its business strategy?”
• Models used: business diamond; managerial
levers
 The Business Diamond

Business
Process

Tasks and Values and

Structure Beliefs

Management and
Measurement
Systems
(Source: Hammer et al, 1994)
(control)
 Managerial Levers:
Organizational Design Variables
Organizational variables
Authority to initiate, approve, implement, and control various types of
Decision rights
decisions necessary to plan and run the business.
Business Processes The set of ordered tasks needed to complete key objectives of the
business.
Formal reporting relationships The structure set up to ensure coordination among all units within the
organization.
Informal networks Mechanism, such as ad hoc groups, which work to coordinate and transfer
information outside the formal reporting relationship.

Control variables
Data The information collected, stored, and used by the organization.
The processes by which future direction is established, communicated, and
Planning
implemented.
Performance measurement The set of measures that are used to assess success in the execution of
and evaluation plans and the processes by which such measures are used to improve the
quality of work.
The monetary and nonmonetary devices used to motivate
Incentives
behavior within an organization.

Cultural variables The set of implicit and explicit beliefs that underlie decisions made and
Values actions taken.
Understanding Organization Strategy
means answering the following Questions:
1. What are the important structures and
reporting relationships within the
organization?
2. What are the characteristics, experiences,
and skill levels of the people within the
organization?
3. What are the key business processes?
4. What control systems are in place?
5. What is the culture of the organization?
BRIEF OVERVIEW OF
BUSINESS STRATEGY
FRAMEWORKS
A Business Strategy is:
• A well-articulated vision of where the
business seeks to go and how it expects to
get there
• It is the form by which a business
communicates its goals
• The following are examples of well-accepted
models of business strategy
• Models used: Porter’s generic strategies
model
 Porter’s Generic Strategy Framework –
3 Strategies for achieving Competitive Advantage

Competitive Advantage
Uniqueness
Lower Cost
Perceived by
Position
Customer

Industry wide Overall Cost Differentiation

(Broad Leadership
Target)
Competitive Scope

Particular
Segment only
(Narrow Focus
Target)

Competitive Mechanism
Porter’s Competitive Advantage
Strategies
• Cost leadership: be the cheapest
• Differentiation: focus on making your
product and/or service stand out for non-cost
reasons
• Focus: occupy narrow market niche where
the products/services can stand out by virtue
of their cost leadership or differentiation.
 Variants on Differentiation
Strategy
• Shareholder value model: create advantage
through the use of knowledge and timing
(Fruhan)
• Unlimited resources model: companies with
a large resource can sustain losses more
easily than ones with fewer resources (deep
pocket advantage)
 Business Strategies
and its Competitive Advantage
Uniqueness
Lower Cost
Perceived by
Position
Customer

Industry Cost Differentiation

wide Leadership

Innovation
Competitive Scope

(Broad

Alliance
Target)

Growth
Particular
Segment
only Cost Focus Differentiation
(Narrow Focus
Target)

Industrial economy Knowledge-based

economy
Competitive Mechanism N
Business Level: The Value Chain

Co
mp
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ive
(Value)

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Ad
 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
INFORMATION RESOURCES
AS STRATEGIC TOOLS
 Information Resources
• The term information resources is defined as the
available data, technology, people, and
processes available to perform business
processes and tasks.
• Information resources can be either assets or
capabilities.
– IT asset is anything, tangible or intangible, that can be
used by a firm in its processes for creating, producing
and/or offering its products (IT infrastructure is an
asset).
– IT capability is something that is learned or developed
over time in order for the firm to create, produce or
offer it products.
 IT Assets
• IS infrastructure:
– It includes data, technology, people, and processes.
– The infrastructure provides the foundation for the
delivery of a firm’s products or services.
• Information repository.
– Logically-related data that is captured, organized and
retrievable by the firm.
• Web 2.0 assets now include resources used but
not owned by the firm (eBay, Facebook, etc.).
 IT Capabilities
• Three major categories of IT capabilities:
– Technical skills - applied to designing, developing
and implementing information systems.
– IT management skills - critical for managing the IT
function and IT projects.
– Relationship skills - can either be externally-
focused or spanning across departments.
 Type of Information Resource Definition Example

Anything that can be used by a firm in its processes for creating, producing and/or offering its products
IT Asset
(goods or services)
Base foundation of the IT portfolio shared Hardware, software, network, data components,
IS infrastructure through the firm3 proprietary technology, web-based services

Data that is logically related and organized Critical information about customers that can be used to
Information repository in a structured form accessible and able for gain strategic advantage. Much of this information is
decision making purposes.” increasingly available on the web.

Something that is learned or developed over time in order for the firm to create, produce or offer it
IT Capability
products using IT assets
Ability applied to designing, developing Proficiency in systems analysis and design; programming
Technical skill and implementing information systems skills

Ability to managing IT function and IT Being knowledgeable about business processes and
IT management skills projects managing systems to support them; evaluating technology
options; envisioning creative IS solutions to business
problems

Ability of IS specialists to work with Spanning: having a good relationship between IT and
Relationship skills parties outside the IS department. business managers
Externally-forced: have a good relationship with an
outsourcing vendor

Information Resources
 Using Information resources to
create strategic advantage
• Strategic advantage must be crafted by
combining all of the firm’s resources
including:
– production resources,
– human resources, and
– Information resources
• Information resources include not only data,
but also technology, people and processes.
HOW CAN INFORMATION
RESOURCES BE USED
STRATEGICALLY?
 The Strategic Landscape
• Managers confront elements that influence the
competitive environment.
• Slim tolerance for error requires managers take
multiple view of the strategic landscape, such
as:
– First view - Porter’s five competitive forces model.
– Second view - Porter’s value chain.
– Third view – focuses on the types of IS resources
needed (Resource Based View).
 Striving for Competitive Advantage

• Firm level: Industry & Competitive

Analysis
– Competitive Forces Model
– Competitive Strategy
• Business level:
– Value-Chain Analysis
Five (5) Competitive Forces with Potential Strategic Use of
Information Resources (Porter)
 Discussion Question
• Using the five competitive forces model as
described how IT might be used to provide
a winning position for:
– A Bank
– A global airlines
 Porter’s Value Chain Model
• The value chain model highlights
specific activities (i.e. create, deliver, and
support a company’s product or service)
in the business where competitive
strategies can be best applied and where
information systems are most likely to
have a strategic impact.
• Therefore, the value chain model can be
employed to identify specific, critical
leverage points where a firm can use IT
most effectively to enhance its competitive
position.
 Process View of the Firm: The Value Chain

Co
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itiv
e
(Value)

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Two broad categories:
Primary activities – relate directly to the value created in a product or service.
Support activities – make it possible for the primary activities to exist and remain coordinated
 Using Information Resources to Alter the
Value Chain
• The Value Chain model suggest that competition
can come from two sources:
– Lowering the cost to perform an activity and
– Adding value to a product or service so
buyers will be willing to pay more.
• Lowering costs only achieves competitive
advantage if the firm possesses information on
the competitors’ cost structure
• Adding value is a strategic advantage if a firm
possesses accurate information regarding its
customer such as: which products are valued?
Where can improvements be made? When to …
 The Value System
• The value chain model can be extended
by linking many value chains into a value
system.
• Much of the advantage of supply chain
management comes from understanding
how information is used within each value
chain of the system.
• This can lead to the formation of entire
new businesses designed to change the
information component of value-added
activities.
 The Value System:
Interconnecting relationships between organizations

Upstream Firm Downstream

value value value
Competitive Forces and Strategies
Using IT for these strategies
 Other competitive strategies
• Lock in customers and suppliers
– Locking in customers or suppliers by building
valuable new relationships with them.
– Building switching costs so a firm’s customers or
suppliers are reluctant to pay the costs in time,
money, effort, and inconvenience that it would take
to switch to a company’s competitors.
 Other competitive strategies (cont.)
• Barriers to entry
– Discourage or delay other companies from entering
market
– Increase the technology or investment needed to
enter
• Leverage investment in IT
– Leveraging investment in information technology by
developing new products and services that would
not be possible without a strong IT capability.
How Technology Permeates the Value Chain

Inbound Logistics Automated warehouse

Operations Flexible Manufacturing

Outbound Logistics Automated order processing

Marketing & Sales Telemarketing, remote terminals for

sales staff
Service Remote servicing of equipment,
computer scheduling & routing of
repair trucks
 Point to ponder for you
??????????
Is this something which a company can
have as an option to win over
competitors?

OR

Is this something which a company must

have to make sure that it survives to face
the competitors?
 Advantage vs. Necessity
• Competitive Advantage – developing products,
services, processes, or capabilities that give a
company a superior business position relative to its
competitors and other competitive forces
• Competitive Necessity – products, services,
processes, or capabilities that are necessary simply
to compete and do business in an industry