08 - IT and Corporate Strategy

IT and Corporate Strategy
Software Applications in Business

MBA
Amir Manzoor
Competitive Advantage of a Firm
• A firm has a competitive advantage when it is able to
perform some function "better" than its competitors.
• Better may mean that it has a superior product, the most
efficient manufacturing process, unique knowledge, or
some other capability that its competitors lack.
• As an example, Intel considers its knowledge of how to
build and operate a semiconductor manufacturing plant
a competitive advantage.
• After obtaining a competitive advantage, the firm faces
the challenge of sustaining it as competitors fight back.
Formulating Corporate Strategy: Key Questions
• What opportunities for new directions are

available?
• What are competitors doing?
Formulating Corporate Strategy: Possible Options
• A firm can continue its present course, maintaining

momentum where it is doing well.
OR
• The firm can dramatically change its strategy by deciding
among competing alternatives for new ventures.
• BUT What is the role of technology in corporate strategy?
“IT and strategy become intertwined, with each
influencing the other. A well-managed firm will strive for
this kind of integration”
Some Examples of Technology and Strategy
• Merrill Lynch’s Cash Management Account (CMA). It was a financial product that
acted like both a bank account and brokerage account combined. The customer
could write checks against the account and even receive a bank charge card.
• Merrill Lynch gained a significant competitive advantage with its cash
management account system by attracting a large number of small investors.
• With a million accounts to operate and update, the magnitude of the
catastrophe if computer systems do not work is hard to imagine. In fact, this
product could never be offered unless a firm had computer technology and could
manage it.
• The volume of updating and the short time requirements would be just too great
for a manual system.
• The technology made it possible for Merrill Lynch to offer a new service that
helped expand the firm's market share and increased the size of its liquid assets
fund.
Some Examples of Technology and Strategy
(Contd.)
• Another example is of a market research firm. The company developed a strategy that is
intertwined with information technology.
• The firm purchased grocery store point-of-sale scanning equipment and, at first, gave it
free to 15 supermarkets in two towns selected on the basis of their demographic makeup.
Household purchases ,using the scanning equipment, were recorded on the firm's
computer in Chicago.
• Since each product is marked with the universal product code, researchers can pinpoint a
family's purchases by price, brand, and size, and then correlate the purchase information
with promotions such as coupons, free samples, price adjustments, advertising, and store
displays.
• With this technology the company can conduct careful, scientific tests of marketing
strategies to determine the most effective approach for its customers. For example,
through cooperation with a cable TV network, the firm can target different TV
commercials to selected households and analyze the resulting purchases.
• The imaginative use of the technology has allowed the firm to gain a competitive lead
over much larger, more well-established market research firms.
• Technology helped the market research firm gain a competitive edge and set a new
standard for service in the industry.
Potential Impact of IT on Value Chain
IT can create dramatic changes here. IT can leverage and support various value chain
activities.
Some Generic Strategies
• Porter elaborates on his value chain analysis and suggests that firms follow one of three generic strategies:
– Low-cost producer: Here the firm tries to have the lowest costs in the industry so that it can compete
on price.
– Differentiation: The firm tries to separate its product image from that of the competition in such a
way that the customer wants its product. Luxury automobile manufacturers like BMW are very adept
at differentiating their products from other cars.
– Market niche strategy: A number of firms try to find a market niche and exploit it.
• In today's competitive economy, we have observed firms focusing on more specific strategies that are
listed below. Most of the time, the firm adopts only one of these, but it is possible to follow two at the
same time.
– Customer Driven: Here the firm focuses on its customers. How can we provide better customer
service? How can we design products that meet our customers‘ needs? What technology exists so we
can better serve our customers? Customer
– Reducing Cycle Times: A firm has a variety of cycle times; a typical one is the length of time it takes
to design a new product or service.
– Global Competition Some firms have decided to follow a strategy of competing in the global
marketplace rather than only in local markets . A firm with global presence will need a variety of
technologies to help coordinate and control all its activities. Information technology is a great
facilitator for global operations.
– Right-Sizing: To compete in a difficult economy, firms have attempted to determine their "right size."
Usually to right-size meant a serious reduction in the number of workers in the firm, and rather large
write-offs for restructuring.
– Quality: Many firms around the world are focusing on quality in the hopes of getting ahead of the
competition.
A Framework for the Strategic Use of IT
•This framework for IT strategy arrays a firm's existing applications against
those that are currently under development. The framework is a useful
one for diagnosing the state of an organization.
•We can look at the nature of the business, its plans for the future, and its
existing and planned applications.
•In a turnaround situation, we may want to emphasize to management the
importance of leading the information systems effort, whereas in the
strategic cell, management may already be aware of the importance of
technology to the firm.
•One common thread seems to run throughout the discussions:
Technology can contribute to a firm's strategy in a number of ways.
• It can reduce costs to help an efficient firm compete
• Technology can tie the firm more closely to suppliers and customers.
• The technology can also become a product itself, such as the Merrill
Lynch's CMA.
Capitalizing on Information Technology
• To take advantage of IT, the top management needs to follow four steps.
1. Look for ways to incorporate technology in a product or service: To do so management
should:
• Look for new approaches to business provided by information processing
• Look for ways IT can help to differentiate a product or service from that of the competition
• Look for ways IT can help open a new market or increase an existing market share.
2. Seek ways to use technology to connect with other firms: Look for inter-organizational
systems that could link two organizations together e.g. to connect your firm electronically to
its customers so that it is easy for them to order from you.
3. Look for ways to use technology to make dramatic changes in the way you structure the
organization: To do so management should:
• Use information technology to design your IT-enabled organization
• Use the IT-based organizational structures to focus on one of the strategies e.g. providing extraordinary
customer service.
4. Integrate technology with planning: To integrate technology with planning, managers have to:
• Understand the operation of their business
• Understand the capabilities of technology
• Invest in building a modern technological infrastructure
• Make information technology a part of its planning process.

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IT and Corporate Strategy

Software Applications in Business

• What opportunities for new directions are

• A firm can continue its present course, maintaining

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