Learning Objectives

Chapter 2
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
Competing with advantages to a business.
Information Technology 3. Give examples of how business process
reengineering frequently involves the strategic
use of IT.

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McGraw-Hill/Irwin

Case 1: FedEx Corporation: Investing in

Learning Objectives IT for Competitive Advantage
4. Identify the business value of using Internet • FedEx and many other companies know that proper
technologies to become an agile competitor or to management and use of information technology can give
them a competitive advantage.
form a virtual company.
• Their IT has to connect 39 hubs around the world with 677
5. Explain how knowledge management systems airplanes, over 90,000 vehicles, and more than 200,000
can help a business gain strategic advantages. 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 Case Study Questions

1. How do the IT investment strategies and focus of 3. FedEx CIO Carter says his company is in the
FedEx and its main competitor UPS differ? Which business of engineering time. Is this a good
company has the better strategy? Why? business vision for FedEx? Why or why not? How
2. Is FedEx’s “move, communicate, and shoot” IT vital is IT to this definition of FedEx’s business?
strategy a good one for its competitive battle with Use examples from the case to illustrate your
UPS? Why or why not? Is it a good model of answer.
competitive IT strategy for other types of
companies? Defend your position.

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 Real World Internet Activity Real World Group Activity

1. Use the Internet to compare the current status of 2. Use the Internet to discover more about how
FedEx, UPS, and DHL in terms of revenue, FedEx is involved in fighting the war on terror,
profitability, parcels delivered, and other beyond what is reported in this case.
measures of business success. Who is winning – For example, FedEx has made some controversial
the competitive battle? Why? disclosures of customer information to intelligence
– Check out what business commentators and financial agencies.
analysts are reporting on the Web to help you answer. – 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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Strategic IT Competitive Forces and Strategies

• 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 Five Competitive Strategies

• If a business wants to succeed must develop • Cost Leadership

strategies to counter these forces: – Become low-cost producers
– Rivalry of competitors within its industry – Help suppliers or customers reduce costs
– Threat of new entrants into an industry and its markets – Increase cost to competitors
– Threat posed by substitute products which might capture – Example, Priceline uses online seller bidding so buyer sets
market share the price
– Bargaining power of customers • Differentiation Strategy
– Bargaining power of suppliers – Develop ways to differentiate a firm’s products from its
competitors
– Can focus on particular segment or niche of market
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– Example, Moen uses online customer design 2- 12

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 Competitive Strategies (cont.) Competitive strategies (cont.)
• Innovation Strategy • Alliance Strategy
– Find new ways of doing business
– Establish linkages and alliances with
• Unique products or services
• Or unique markets • Customers, suppliers, competitors, consultants and other
• Radical changes to business processes to alter the fundamental companies
structure of an industry – Includes mergers, acquisitions, joint ventures, virtual
– Example, Amazon uses online full-service customer systems companies
• Growth Strategy – Example, Wal-Mart uses automatic inventory
– Expand company’s capacity to produce replenishment by supplier
– Expand into global markets
– Diversify into new products or services
– Example, Wal-Mart uses merchandise ordering by global satellite
tracking
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Using these strategies Using IT for these strategies

• The strategies are not mutually exclusive

• Organizations use one, some or all

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Other competitive strategies

Other competitive strategies (cont.)

• Lock in customers and suppliers • Include IT components in products

– And lock out competitors – Makes substituting competing products more difficult
– Deter them from switching to competitors • Leverage investment in IT
– Build in switching costs – Develop new products or services not possible without IT
– 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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 Customer-focused business How can we provide customer value?

• What is the business value in being customer- • Track individual preferences

focused? • Keep up with market trends
– Keep customers loyal
• Supply products, services and information anytime,
– Anticipate their future needs
anywhere
– Respond to customer concerns
• Provide customer services tailored to individual
– Provide top-quality customer service
needs
• Focus on customer value
• Use Customer Relationship Management (CRM)
– Quality not price has become primary determinant of value
systems to focus on customer

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Building customer value using the Internet 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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Case 2: GE Energy and GE Healthcare:

Using IS in the value chain 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 Case Study Questions

1. What are the business benefits of using 3. How could other companies benefit from the
information technology to build strategic customer use of IT to build strategic customer
relationships for GE Energy and GE Healthcare? relationships? Provide or propose several
What are the business benefits for their examples of such uses. Explain how each
customers? benefits the business and its 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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Real World Internet Activity Real World Group Activity

1. Use the Internet to discover if GE Energy and GE 3. What business control and security concerns
Healthcare are expanding or strengthening their uses of IT might a business customer have with the extent
to build strategic customer relationships. What benefits are
they gaining for themselves and claiming for their
of its dependency on GE for the use and
customers? maintenance of assets that are vital to the
2. Use the Internet to discover other companies whose operation of the business?
products are networked, monitored, diagnosed, and – Discuss the rationale for these concerns and what
managed at customers’ sites like the GE companies in this measures both the business and GE could take to
case. Alternatively, choose other companies you can reduce any security threats and improve a customer’s
research on the Internet and propose several ways they secure control of the business assets it obtains from GE.
could implement and benefit from similar uses of
information technology.
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How BPR differs from business

Business Process Reengineering improvement
• 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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 A cross-functional process Reengineering order management

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Agility Four strategies for agility

• Agility is the ability of a company to prosper An agile company:

– In a rapidly changing, continually fragmenting • Provides products as solutions to their customers’
– Global market for high-quality, high-performance, individual problems
customer-configured products and services
• Cooperates with customers, suppliers and
• An agile company can make a profit with competitors to bring products to market as quickly
– Broad product ranges and cost-effectively as possible
– Short model lifetimes
• Organizes so that it thrives on change and
– Mass customization
uncertainty
• Individual products in large volumes
• Leverages the impact of its people and the
knowledge they possess
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How IT helps a company be agile 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 Strategies of virtual companies

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Knowledge Creation Two kinds of knowledge

• Knowledge-creating company or learning • Explicit knowledge

organization – Data, documents and things written down or stored on
– Consistently creates new business knowledge computers
– Disseminates it throughout the company • Tacit knowledge
– And builds in the new knowledge into its products and – The “how-to” knowledge which reside in workers’ minds
services
• A knowledge-creating company makes such tacit
knowledge available to others

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Knowledge issues Knowledge management techniques

• What is the problem with organizational knowledge

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

Source: Adapted from Marc Rosenberg, e-Learning: Strategies for Delivering Knowledge in the Digital Age
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 Case 3: GE, Dell, Intel, GM, and
Knowledge management systems (KMS) Others: Debating the Competitive
advantage of IT
• KMS manage organizational learning and business
know-how Does IT matter?
• Goal: • No:
– Nicholas Carr argues that IT is infrastructure like electricity
– Help knowledge workers to create, organize, and make
available knowledge – Too commonplace to get competitive advantage
– Whenever and wherever it’s needed in an organization • 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 Real World Internet Activity

1. Do you agree with the argument made by Nicholas Carr to 1. Nicholas Carr’s article created a storm of debate
support his position that IT no longer gives companies a that is still raging. Using the Internet, see if you
competitive advantage? Why or why not?
can find Carr’s original article. Also, try to find
2. Do you agree with the argument made by the business
leaders in this case in support of the competitive advantage
some more opinions for and against Carr’s
that IT can provide to a business? Why or why not? arguments beyond those provided in the case.
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 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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