Transcript Slide 1
Chapter 2
Competing with Information Technology Why study Strategic Information Systems?
Technology is no longer an afterthought in forming business strategy, but the actual cause and driver.
IT can change the way businesses compete.
Information systems are a means of organizational restructuring to allow organizations to adapt Information Systems are 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 business environment.
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Competing with Information Technology What is a strategic IS?
Any kind of information system that uses information technology to help an organization gain a competitive advantage, reduce a competitive disadvantage, or meet other strategic enterprise objectives.
These systems provide
Competitive Advantage
opposed to
Competitive Necessity
as
What’s the difference?
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Competing with Information Technology What is the difference between competitive advantage and competitive 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
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Competing with Information Technology Entering into a Market
Product Life Cycle /Innovation Adoption
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Competing with Information Technology Entering into a Market
Top 5 reasons why most product launches fail*
#1: The company can’t support fast growth
•
Mosquito Magnet
: The timing was perfect: The West Nile virus scare had elevated mosquitoes from irritating nuisances to life-threatening disease carriers. Mosquito Magnet quickly became one of the top-selling products. When it expanded manufacturing from its low-volume Rhode Island facility to a mass-production plant in China, quality dropped. Consumers became angry, and a product that was saving lives almost went off the market.
#2: The product falls short of claims and gets bashed.
•
Microsoft Vista
: In 2007, when Microsoft launched Windows Vista, the media and the public had high expectations. So did the company, which allotted $500 million for marketing and predicted that 50% of users would run the premium edition within two years. But the software had so many compatibility and performance problems that even Microsoft’s most loyal customers revolted.
#3: The new item exists in “product limbo.”
•
Coca-Cola C2 (2004)
: The product had half the calories and carbs and all the taste of original Coke, was introduced with a $50 million advertising campaign. However, the budget couldn’t overcome the fact that C2’s benefits weren’t distinctive enough. Men rejected the hybrid drink; they wanted full flavor with no calories or carbs, not half the calories and carbs. And the low-carb trend turned out to be short-lived.
* Harvard Business Review, April 2011
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Competing with Information Technology Entering into a Market
Top 5 reasons why most product launches fail*
#4: The product defines a new category and requires substantial consumer education —but doesn’t get it.
•
Febreze Scentstories
: In 2004 P&G launched a scent “player” that looked like a CD player and emitted scents (contained on $5.99 discs with names like “Relaxing in the Hammock”) every 30 minutes. The company hired the singer Shania Twain for its launch commercials. This confused consumers, many of whom thought the device involved both music and scents, and the ambiguity caused Scentstories to fail.
#5: The product is revolutionary, but there’s no market for it.
• The Segway: Ads showing riders who looked like circus performers perching on weird looking chariots didn’t help, nor did the price tag—$5,000. Instead of selling 10,000 machines a week, as Kamen had predicted, the Segway sold about 24,000 in its first five years.
* Harvard Business Review, April 2011
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Competing with Information Technology • • • Entering into a Market •
Advantages for Early Adopters
Reaping of product benefits
• Rogers, who studied the diffusion of new technologies such as hybrid seeds and chemical fertilizers among farmers found that by adopting early they were able see increases in profits early, thus gaining an advantage over later adopters
Problems for Early Adopters
The ‘early adopter tax’
• In September 2007, Apple dropped the US price of its new 8GB iPhone (introduced June 29, 2007) from $599 to $399.
The bugs associated with early versions of new products
• Microsoft Vista, Google TV (Meant to revolutionize the way we watched both streaming and live TV content, Google announced its $299.99 set top box in June of 2010., but failed to establish relationships with any content providers. Still available but Google is now championing Chromecast as its stream-to-TV solution.
The chance that the technology in question may be quickly usurped by another
• as HD DVD was by Blu-ray
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Competing with Information Technology Factors Influencing Competitive Forces
Factors influencing industry Competition
• Number Competitors • Growth Potential • Capacity
Competitors
• Complexity
Rivalry
• Flexibility through customization, volume and variety • Sustainable Advantage through Innovation • Intense rivalry if many companies • ↑ rivalry if ↑ growth potential & high profits • Private Space Shuttles v. Commercial Airlines • Genetic Research v. Hot Dog Stands • Agile Companies • Apple
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Competing with Information Technology Factors Influencing Competitive Forces
Factors discouraging/encouraging new competitors
• Economies of Scale • Proprietary Products • Brand Identity • Distribution Channels • Profit Margin • Government Policy • Capital Requirements • Retaliation
New Entrants Competitors Rivalry
• Production of large outputs at lower costs than smaller rivals • Patents • Coca-Cola v. Top Soil • Easy Access? • Supermarkets v. Jewelry Stores • Network Broadcasting v. Lemonade Stands • Cost to start new Bank • Airlines v. Slide-rulers
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Competing with Information Technology Factors Influencing Competitive Forces
Factors influencing supplier power
• Concentration • Differentiation (branding)
New Entrants
• DeBeers v. Diing Sen • Rolls Royce • Volume
Competitors
• Is the industry vital to the supplier? Can suppliers easily find new customers?
Vendors
• Strength of Distribution Channels • Switching Costs
Rivalry
• Lowest cost?
• Microsoft for Linux?
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Competing with Information Technology Factors Influencing Competitive Forces
Factors influencing buyer power
• buyer concentration to firm concentration ratio • Information
New Entrants Competitors
• Many buyers/Few Suppliers • Surfers v. unaware Customers.
Vendors Buyers
• Importance of volume • Price Sensitivity
Rivalry
• Calpers/Walmart • Necessary (electricity) v. impulse buying
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Competing with Information Technology Factors Influencing Competitive Forces
Factors influencing Substitutes
• Switching Costs • Buyer inclination to substitute
New Entrants
• DVD v. VCR • iPod
Competitors Vendors Buyers Rivalry
• Price-Performance • Trade-off substitutes
Substitutes
• Does it give a good ‘bang for the buck?” • Heating (necessary) v. impulse buying
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Competing with Information Technology What Competitive Strategies are available?
Cost Leadership
• Becoming a low-cost producer of products and services • Finding ways to help suppliers and customers reduce their costs • Increase costs of competitors
Example?
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Competing with Information Technology What Competitive Strategies are available?
Differentiation
• Developing ways to differentiate a firm’s products and services from its competitors’ • Reduce the differentiation advantages of competitors
Examples?
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Competing with Information Technology What Competitive Strategies are available?
Innovation
• Development of unique products and services • Entry into unique markets or market niches • Making radical changes to the business processes for producing or distributing products and services that are so different from the way a business has been conducted that they alter the fundamental structure of an industry
Examples?
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Competing with Information Technology What Competitive Strategies are available?
Growth
• Significantly expanding a company’s capacity to produce goods and services • Expanding into global markets • Diversifying into new products and services • Integrating into related products and services
Examples?
electrical and electronic equipment, plastics, aircraft engines, medical imaging equipment, and financial services
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Competing with Information Technology What Competitive Strategies are available?
Alliance
• Establishing new business linkages and alliances with customers, suppliers, competitors, consultants, and other companies
Examples?
Proctor and Gamble
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Competing with Information Technology
How does that work?
• In the early 1990’s, Wal-Mart invited its major suppliers to jointly develop powerful supply chain partnerships • The Wal-Mart/Procter & Gamble (P&G) alliance incorporated vendor-managed inventory, category management, and other inter-company innovations. • For example, P&G monitors and replenishes all of the merchandise at Wal-Mart Stores (Wal-Mart does not place any orders, although occasionally it reviews P&G’s orders) • Based on in-store sales, P&G also modifies it product mix • The outcome has been increased sales and JIT inventory, resulting in increased sales/profits for both Wal-Mart and P&G
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Competing with Information Technology
How do Information Systems help in This?
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Competing with Information Technology Additional Competitive Advantage Tactics
Locking in customers or suppliers
:
• McKesson Drugs, as well as others, have developed their own proprietary automated dispensing and reporting systems along with consulting services to deepen their relationships with clients. • Airlines and hotels have benefited from frequent flier and frequent guest (Loyalty) programs • These programs are possible because companies keep more information about their customers' historical purchasing patterns. Retailers collect detailed information on individual customers' buying patterns. These methods require tracking individual customer purchases over time, establishing accounts for each
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Competing with Information Technology Additional Competitive Advantage Tactics
Locking in customers or suppliers
:
Building switching costs:
• 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.
• The benefits (of Frequent Flier/Frequent guest programs) become part of the total switching costs: Either the customer loses them (a customer switching cost) or the new carrier matches them (a supplier switching cost).
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Competing with Information Technology Additional Competitive Advantage Tactics
Locking in customers or suppliers
:
Building switching costs: Raising barriers to entry:
• Without the technology in use by the industry (e.g., ATMs) new entrants would be at a severe disadvantage
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Competing with Information Technology Additional Competitive Advantage Tactics
Locking in customers or suppliers
:
Building switching costs: Raising barriers to entry: Leveraging investment :
• Using investments in information technology that have developed new products and services that can not be duplicated without a strong IT capability.
• For example, the use of intranets and extranets which enables them to leverage previous investments in web browsers, PCs, servers and client-server networks.
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Competing with Information Technology An early example of SIS
American Airlines/SABRE Systems*
• In the late 1950s, IBM and American Airlines team up to form SABRE (the Semi Automatic Business Research Environment), the first major system to use interactive, real-time computing, reservation system. • In 1960 the system was installed, the system processed 84,000 telephone calls/day • In 1964, the SABRE system becomes the largest (nationwide) commercial real-time data-processing system in the world. American Airlines saves 30% on labor costs. • In 1976, the SABRE system is installed in a travel agency for the first time, triggering a wave of travel automation, known as Global Distribution Systems (GDSs) , or computerized reservation systems. • In a 1984 study it was found that travel agents selected the flight appearing first more than half the time (which of course was AA). Tsk-Tsk • In 1985, easySABRE intended for PC use was released • In 1986, AMR spins-off SABRE as an independent entity • In 2000, AMR sells its remaining shares. * Taken from various sources
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Competing with Information Technology An early example of SIS
AMR’s Decision on SABRE: Good/Bad Choice??*
• With the popularity of the Internet, Airlines assumed that the middlemen (agents) were headed for extinction, and that customers would go to their websites or websites which hooked-up directly to their computers.
Why pay agents?? Why continue their own websites which were expensive to develop and maintain??
• • The loss of direct commissions from airlines made agents more reliant on GDSs, who provided them with commissions (ultimately provided by airlines) and back-office computing
The result??
• According to
Take Travel Forward
(an airline lobby group), most flights booked through a GDS costs the airline about $12 per round trip • This costs the airlines about $7B per year, more than double the (projected, 2012) airline industry net profits of $3B.
* Taken mostly from The Economist, August 25 th , 2012
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Competing with Information Technology Another example of SIS
JetBlue Airlines
• At a time when airlines (especially low-cost airlines) have failed JetBlue (founded 1999) has prospered.
• 2009 Revenues: $3.286 billion • JD Powers 2010 rankings of low-cost carriers: 1.
JetBlue Airways
2. Southwest Airlines 3. WestJet 4. AirTran Airways 5. Frontier Airlines
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Competing with Information Technology Another example of SIS
Some Reasons
• Combination reservation system and accounting system • Supports customer services and sales tracking • Electronic tickets • No paper handling or expense • Encourages online ticket purchases • Avoids travel agents • Significant cost savings • Automated Maintenance Systems • Logs all airplane parts and time cycles • Reduced tracking costs
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Competing with Information Technology Another example of SIS
Some Reasons
• Flight planning software • Maximize seats occupied on a flight • Reduced planning costs • In-house software for tracking operational data • Updated on a flight by flight basis • Systems are accessible by all employees • Employees are given wireless devices so they can Report and respond to irregular events • All training records are stored electronically • Do not use the hub and spoke routing
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Competing with Information Technology Another example of SIS
Some Reasons
• Paperless Cockpits • Pilots provided with laptops • Live TV through contract with DirecTV • Excellent on-schedule arrivals/departures • Fewest mishandled baggage • Rapid check-in times • Partnership • In 2009, signed a 6 year strategic agreement with Verizon Business to manage its IT data center and network needs, as well as provide security and IT consulting services.
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Competing with Information Technology Customer Focused Businesses
Business that:
• provide top-quality customer service • respond to customer interests and concerns • anticipate customers’ future needs
Such as?
Consider Hilton Hotels Reservations World-Wide (HRW)
• 2,400 hotels in 65 Countries • 31M calls, 9M reservations annually • Average time to complete reservation: less than 2 minutes
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Competing with Information Technology
How?
Customer Orders Placed Directly OR Distribution Partner Orders (e.g., Expedia, Priceline)
Create/Revise as necessary View customer Information
Employees Customer Database
(Intranet/Extranet)
Personalize Service Transaction Database
(Internet/Extranet)
Build Web Community (Customers, Providers, Partners)
Check/Revise Reservation
Customers and Distribution Partners
(Internet/Extranet)
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Competing with Information Technology Value Chains
Viewing a firm as a series, chain, or net work of basic activities that add value to its products and services, and thus add a margin of value both to the firm and its customers.
• Primary processes add to revenues (Line) • Support Processes are intended to assist primary processes (Staff)
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Competing with Information Technology Value Chains and Strategic IS
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Competing with Information Technology Using IT for Strategic Advantage
Organizational Redesign
• The use of self-directed cross-functional or multidisci plinary process teams
Business Process Reengineering
• Fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in cost, quality, speed, and service.
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Competing with Information Technology Using IT for Strategic Advantage
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Competing with Information Technology Agile Companies •
Agility
is the ability to prosper: • In rapidly changing, continually fragmenting global markets • By selling high-quality, high-performance, customer configured products and services • By using Internet technologies to integrate and manage business processes.
• An agile company profits in spite of: • Broad product ranges • Short model lifetimes • Arbitrary lot sizes
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Competing with Information Technology Agile Companies • Support
mass customization
: Providing individualized products while maintaining high volumes of production.
• Presents products as solutions to customers’ problems • Cooperates with customers, suppliers and competitors • Brings products to market as quickly and cost-effectively as possible • Organizes to thrive on change and uncertainty • Leverages the impact of its people and the knowledge they possess
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Competing with Information Technology Agile vs. ‘Staid’ companies Performance New Products Modified Products Growth Agile 8.8
Staid 3.2
35 +7 13 -10 Profit Growth +37 -13 Measurement Percent of 2004 sales from new products introduced in previous three years. Average = 5.6% Average percent of 2004 sales from modified products introduced in previous three years. Average = 22.5% Average annual percentage growth 2002-2004 (relative to industry average). Average growth = 6.8% per annum Average annual percent change in ROE 2002-2004 (relative to industry average). Average = 0.5% From: "Business Agility & IT Portfolios," MIT Sloan School of Management, Center for Information Systems Research, Summer Session 3, June 2006, data from 649 firms, National Science Foundation grant number IIS- 0085725. Agile = Average of firms above sample mean on percent of sales from new products (i.e., 5.6%). Staid = Average of firms below sample mean. Copyright © Massachusetts Institute of Technology, 2006. This work was created by MIT’s Sloan Center for Systems Research (CISR)
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Competing with Information Technology IT and Agile Companies Agile companies are IT Savvy. An IT Savvy firm uses a digital platform to integrate a set of electronic business processes and the technologies, applications, and data supporting these processes. Managers in these companies elevate their firm's performance by a consistent use of IT. They use disciplined core processes and then apply the resulting data to both operational and strategic decision-making tasks • Business Value – firms with above average IT spending & IT Savvy had net margins 20% above their industry's median • Profitability via sharing – firms with above average percentage of shared applications & it savvy have return on assets 30% above their industry's median • Time to market – firms with above average IT infrastructure spending & IT savvy grew 3 percentage points higher than their industry's average • IT-enabled business investments – top-performing companies (IT savvy) can get up to 40% more value "IT Savvy – What Top Executives Must Know to Go from Pain to Gain," Peter Weill & Jeanne W. Ross, Harvard Business Press, 2009, pp. 4 –5
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Competing with Information Technology IT and Agile Companies
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Competing with Information Technology Creating a virtual company • An organization that uses information technology to link people, organizations, assets, and ideas.
• Creation of
Interenterprise Information Systems
: • Information systems implemented on an extranet among a company and its suppliers, customers, subcontractors, and competitors with whom it has formed alliances.
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Competing with Information Technology Virtual company strategies • Share infrastructure and risk with alliance partners.
• Link complementary core competencies • Reduce concept-to-cash time through sharing.
• Increase facilities and market coverage.
• Gain access to new markets and share market or customer loyalty.
• Migrate from selling products to selling solutions
Example?
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Competing with Information Technology Virtual company strategies
Cisco Systems
• The world’s largest supplier of telecom munications product; manufacturer of
none
• Online orders arrive simultaneously at Cisco (San Jose) and Jabil Circuit (St. Petersburg, FL).
• Jabil builds the product from 3 on-site warehouses: 1 owned by Jabil, 1-owned by Cisco, 1 owned by Hamilton Standard • Product is tested, checked against the order (at Cisco) and shipped (by Jabil) • Jabil and Hamilton Standard send bills to Cisco • Cisco sends bill to customer
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Competing with Information Technology Knowledge Creation Companies • “learning organizations” or “organizational learning” • Creating new business knowledge, disseminating it widely throughout the company, and quickly building the new knowledge into their products and services.
What does “knowledge” mean?
• Includes processes, procedures, patents, reference works, formulas, best practices, forecasts, and fixes •
Explicit knowledge
: data, documents, things written down or stored on computers •
Tacit knowledge
: the “how-tos” of knowledge, which reside in workers
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Competing with Information Technology Knowledge Management Systems (KMS) • Manages organizational learning and know-how • Helps knowledge workers create, organize, and make available important knowledge • Makes this knowledge available wherever and whenever it is needed
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Competing with Information Technology Knowledge Management
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Competing with Information Technology Summary
Information technologies can support many competitive strategies including cost leader ship, differentiation, innovation, growth and alliance
IT can help
• Build customer-focused businesses • Reengineer business processes • Businesses become agile companies • Create virtual companies • Build knowledge-creating companies
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Competing with Information Technology