Chapter 2

Competing with Information Technology

Section I: Fundamentals of Strategic Advantage

Strategic IT
A strategic information system is any information system that uses IT to help an organization…

 Gain a competitive advantage: IT differentiates businesses by enabling unique capabilities. Strategic

information systems streamline operations, improve efficiency, enhance customer experiences, and offer
innovation.
 Reduce a competitive disadvantage: Strategic information systems bridge gaps and help businesses catch up
with or surpass competitors, reducing disadvantages.
 Or meet other strategic enterprise objectives: IT enables organizations to achieve strategic goals beyond
competition, including improving collaboration, enhancing supply chain efficiency, optimizing resource
allocation, and enabling effective decision-making.

Five Competitive Strategies

 Cost Leadership Strategy: Achieving low production costs or assisting stakeholders in cost reduction to gain a
competitive advantage.
Example: Bata employs cost leadership strategies by optimizing manufacturing processes and supply chain
efficiency, allowing them to offer affordable footwear without compromising quality, gaining market share and
competitive advantage.
 Differentiation Strategy: Creating unique products or services to stand out from competitors or minimizing
competitors' differentiation advantages.
Example: Olpers differentiates itself through premium quality dairy products and personalized customer
experience, establishing a unique brand identity and competitive advantage.
 Innovation Strategy: Seeking novel approaches to conducting business, including the development of unique
products, entering new markets, or making radical changes to business processes.
Example: Nestle drives innovation through R&D investments, collaborations, and consumer research, creating
innovative food and beverage products while embracing advanced technologies and sustainability practices.
 Growth strategies: It involves increasing a company's production capacity, expanding into global markets,
diversifying its product and service offerings, or integrating with related products and services.
Example: J. Brand implements growth strategies by expanding production capacity and entering global markets,
driving revenue growth and capturing a larger market share in the fashion industry.
 Alliance strategies: It creates new business linkages and alliances with customers, suppliers, competitors,
consultants, and other companies through mergers, acquisitions, joint ventures, virtual companies, or marketing
agreements for mutual benefit.
Example: Khaddi forms strategic alliances with renowned fashion designers, leveraging their expertise and
reputation to enhance brand image, expand customer base, and drive mutual growth.

Other Competitive Strategies

 Lock in Customers and Suppliers: Deter switching with loyalty programs and long-term contracts.
Example: Nestle implements the Nestle Rewards program, where customers earn points for purchasing their
products, fostering loyalty and encouraging repeat purchases.
 Build Switching Costs: Make customers and suppliers dependent on innovative IS, increasing the cost of
switching.
Example: National Foods' unique spice blends and ready-to-cook meal mixes create switching costs, making it
challenging for customers to switch to other brands due to the distinct flavors and convenience offered.
 Erect Barriers to Entry: Discourage new entrants with patents, distribution networks, and proprietary
technology.
Example: Molty Foam's strong brand recognition create barriers for new competitors, making it challenging for
them to enter and gain market share in the Pakistani foam mattress industry.
 Build Strategic IT Capabilities: Seize opportunities, improve efficiency, and leverage technology
advancements.
Example: Telenor Pakistan builds strategic IT capabilities for enhanced customer engagement, seamless
communication services, and robust data security, solidifying its position as a leading telecommunications
brand in Pakistan.
 Leverage Investment in IT: Develop unique products/services enabled by strong IT capabilities.
Example: Khaddi leverages IT investment for efficient inventory management, personalized online shopping,
and seamless order fulfillment, enhancing customer satisfaction and digital presence.

Building Customer Value via the Internet( explanation diagram)

How a customer-focused business builds customer value and loyalty using Internet technologies?

A customer-focused business utilizes the invisible IT platform including intranets, extranets, e-commerce
websites, and web-enabled internal processes, forms the foundation of the customer-focused e-business model.
It allows the business to target desired customer segments and fully control the customer's overall experience
with the company.
Customers utilize the Internet to interact with businesses, seeking support, making purchases, and evaluating
products. This enables cross-functional teams to collaborate and address customer needs effectively. The
Internet and extranet connections also engage suppliers and partners to ensure prompt delivery and quality
service, demonstrating a focus on customer value.
To be successful, a customer-focused business simplifies its processes to ensure a smooth and positive
experience for customers. It uses CRM systems to give employees a complete understanding of each customer,
enabling personalized service. The business also provides self-service options for customers, allowing them to
access information and resolve issues independently. By fostering an online community, the business
encourages collaboration and builds customer loyalty.

The Value Chain and Strategic IS

The value chain is a concept developed by Michael Porter that describes a series of activities that organizations
engage in to create value for their customers. In the value chain framework, there are primary processes directly
linked to product manufacturing or service delivery, and support processes that indirectly contribute to the
organization's products or services. Primary processes are focused on the core activities, while support
processes assist in the day-to-day operations of the business.
Strategic information systems (IS) refer to using technology to gain a competitive advantage. Strategic IS can
optimize and improve activities in the value chain such as procurement, operations, marketing, sales, service,
and support functions. It helps streamline processes, enhance decision-making, and improve customer
experiences.

The value chain of a firm

 The value chain of a firm refers to the set of activities that it performs in order to create value for its customers.
These activities can be categorized into two main types: primary activities and support activities.
 Primary activities:

 Inbound logistics: Activities related to receiving, storing, and distributing inputs to the production process.
 Operations: Activities involved in transforming inputs into the final product or service.
 Outbound logistics: Activities related to the storage and distribution of the finished product.
 Marketing and sales: Activities involved in promoting and selling the product or service to customers.
 Service: Activities that enhance or maintain the value of the product or service after it has been sold.

 Support activities:

 Procurement: Activities related to sourcing and purchasing inputs.

 Technology development: Activities focused on research, development, and innovation to improve processes
and products.
 Human resource management: Activities involved in recruiting, training, and retaining employees.
 Firm infrastructure: Activities that provide the necessary support, such as finance, legal, quality management,
and overall organizational structure.

By analyzing and optimizing each of these activities, a firm can identify opportunities for cost reduction,
differentiation, and overall value creation. The goal is to ensure that each activity contributes to the firm's
competitive advantage and enhances customer satisfaction.

(Explanation of a figure, Using IS in the Value Chain)

The value chain model shows how information technologies can be strategically applied to various business
processes. Examples include using collaborative intranets for improved communication and coordination,
implementing employee benefits intranets for easy access to benefits information, utilizing extranets for joint
design with business partners, and leveraging e-commerce portals for streamlined procurement. In primary
processes, examples include automated warehousing systems, flexible manufacturing systems, online order
processing, targeted marketing on the internet, and integrated customer relationship management systems. The
value chain concept helps identify where and how to apply information technology strategically, gaining a
competitive advantage in the market.

SECTION II: Using Information Technology for Strategic Advantage

Strategic Uses of IT
Strategic uses of IT involve using technology to achieve specific business goals and gain a competitive
advantage in the digital era like products, services, and capabilities.
 Products: IT enables the development of innovative and unique products.
Example: Apple's iPhone, which introduced a revolutionary touch screen interface and app ecosystem.
 Services: IT enhances service delivery and customer experience.
Example: Amazon's use of advanced algorithms and personalized recommendations for a seamless shopping
experience.
 Capabilities: IT strengthens internal capabilities and operational efficiency.
Example: Tesla's use of IT-enabled automation in manufacturing processes to achieve faster production and
higher quality control.
By strategically deploying IT in these areas, companies can differentiate themselves, deliver superior products
or services, and improve overall organizational capabilities.

Reengineering Business Processes

 Business process reengineering (BPR) is the radical redesign of core business processes to achieve significant
improvements in performance, efficiency, and effectiveness. It aims to fundamentally rethink how work is done
to enhance productivity, quality, customer service, and competitiveness.

Advantages:
 Increased Efficiency: BPR eliminates unnecessary steps, streamlines processes, and automates tasks for
improved efficiency.
 Enhanced Customer Satisfaction: BPR redesigns processes with a customer-centric approach to meet their
needs and enhance satisfaction.
 Cost Reduction: BPR eliminates unnecessary tasks,, optimizes resources, and reduces waste for cost savings.
 Improved Agility and Flexibility: BPR enables organizations to respond quickly to market changes and
customer demands.
 Better Integration and Collaboration: BPR encourages teamwork and better project outcomes in software
development by promoting collaboration and breaking down barriers between different teams.

Disadvantages:
 Disruption during Implementation: BPR can disrupt operations, requiring adjustments and causing temporary
productivity declines.
 Risk of Failure: Poor planning and execution can lead to BPR failure, wasting resources and damaging
reputation.
 Overemphasis on Technology: Focusing too much on technology without considering human factors can lead
to suboptimal outcomes.
 Lack of Long-Term Sustainability: Sustaining BPR improvements requires ongoing monitoring, continuous
improvement efforts, and a supportive culture.

The Role of IT
IT plays a major role in reengineering most business processes:
 IT can substantially increase process efficiencies: Through automation, IT systems can significantly enhance
process efficiencies by reducing manual efforts, minimizing human error, and improving workflow speed.
 IT improves communication: IT tools and systems provide efficient and effective means of communication
within and across organizations. Email, instant messaging, video conferencing, and collaborative platforms
enable real-time and seamless communication.
 IT facilitates collaboration: IT platforms and tools promote collaboration by enabling employees to work
together on shared documents, projects, and tasks.

A Cross-Functional Process
A cross-functional process refers to a business process that involves multiple departments or functional areas
within an organization. In the context of order management, integrating enterprise resource planning (ERP)
software and web-enabled electronic business and commerce systems can significantly enhance and streamline
these processes.
Business Processes / Order Management
 Proposal: In some business contexts, the order management process begins with the proposal stage. This
involves creating a formal proposal or quotation for the products or services requested by the customer. The
proposal typically includes details such as pricing, specifications, terms and conditions, and any other relevant
information.
 Commitment: When the customer says "yes" to the proposal and wants to go ahead with the order, a
commitment is made. This means both parties are serious about completing the order.
 Configuration: When ordering products or services that need to be tailored or set up according to the
customer's needs, this step is about gathering exactly what the customer wants. It could mean choosing product
options, stating preferences, or adjusting software to fit what the customer wants.
 Credit Checking: Before processing the order, businesses often perform credit checks on customers to assess
their creditworthiness and determine the payment terms. This helps mitigate the risk of non-payment or late
payments. Credit checking involves evaluating factors such as the customer's credit history, financial stability,
and payment track record.
 Delivery: Once the order is ready for shipment, the delivery process takes place. This involves coordinating the
transportation, scheduling the delivery, and ensuring the products reach the customer's designated location in a
timely manner. Tracking and monitoring the delivery status may also be part of this step.
 Billing: After the products or services are delivered, the billing process begins. This involves generating an
invoice or bill for the customer, detailing the products or services provided, pricing, taxes, and any applicable
discounts or promotions.
 Collections: When a customer doesn't pay on time, the collections process begins. This includes reaching out to
remind them about the overdue payment, sending follow-up notices, and, if needed, involving collections
agencies or legal steps to collect the outstanding amount.

Business Functions
 Sales: Understands customer requirements, creates compelling proposals, and negotiates terms.
 Manufacturing: Customizes or assembles products based on customer specifications.
 Finance: Assesses creditworthiness, establishes payment terms, and ensures financial viability.
 Logistics: Coordinates transportation, packing, and timely delivery of products.

Reengineering Order Management

IT solutions that support reengineering order management include:
 CRM Systems: Implementing CRM systems using intranets and the Internet improves customer relationship
management and facilitates effective communication.
 Supplier-Managed Inventory Systems: Leveraging the Internet and extranets, supplier-managed inventory
systems enhance supply chain collaboration and visibility.
 Cross-Functional ERP Software: Integration of manufacturing, distribution, finance, and human resource
processes using ERP software streamlines order management.
 Customer-Accessible E-commerce Websites: E-commerce websites enable customers to place orders, check
status, make payments, and access customer service.
 Intranet and Extranet Databases: Intranets and extranets provide secure access to customer, product, and order
status databases, facilitating efficient data management.
These IT solutions optimize order management processes, improving efficiency, collaboration, and customer
satisfaction.

Agility:
The concept of agility in business emphasizes the importance of adapting to changing market conditions and
customer demands.
By offering high-quality and high-performance products and services, a company can differentiate itself from
competitors and attract customers who value these attributes.
Internet technologies help companies be agile by allowing them to reach more customers, sell products easily,
communicate and collaborate quickly within the company, and adapt to market changes faster.
An agile company succeeds even when dealing with a wide variety of products, short product lifecycles,
customized items, and varying production quantities.

Becoming an Agile Company

To be an agile company, a business must use four basic strategies:
 Value-based pricing: Pricing products based on customer value, not production cost.
 Collaborative approach: Collaborate with stakeholders for efficient market entry.
 Embrace change and uncertainty: Adapt to changing customer needs and opportunities.
 Value employees and their knowledge: Foster innovation and responsibility.
 Types of Agility
 Customer Agility:
Customer agility actively engages customers in the innovation process by seeking their ideas, feedback, and
involvement in testing and co-creation. This helps organizations understand customer needs and preferences,
leading to better and more customer-focused innovation.
Role of IT: Information Technology (IT) plays a crucial role in enabling and enhancing customer agility by
providing technologies for building and enhancing virtual customer communities for product design,
feedback, and testing.
Example: eBay customers play a crucial role in product development by actively engaging with the platform,
posting around 10,000 messages weekly. They share tips, identify glitches, and advocate for changes,
effectively serving as the de facto product development team for eBay.

 Partnering Agility:
Partnering agility involves collaborating with external stakeholders to accelerate innovation and gain a
competitive advantage by leveraging their resources, expertise, and capabilities.
Role of IT: Information Technology (IT) plays a significant role in facilitating partnering agility by providing
technologies that enable interfirm collaboration and enhance supply chain systems.
Example: Yahoo! transformed its service from a search engine to a portal by forming multiple partnerships to
offer content and media-related services directly through its website.

 Operational Agility:
Operational agility achieves speed, accuracy, and cost efficiency in innovation through streamlined processes,
optimized supply chains, and agile project management, enabling quick response to market demands and cost-
effective innovation.
Role of IT: Information Technology (IT) plays a crucial role in enabling operational agility by providing
technologies for the modularization and integration of business processes.
Example: Ingram Micro, a global wholesaler, has implemented an integrated trading system that enables
direct connectivity between its customers, suppliers, and its procurement and ERP systems.

Virtual Company
A virtual company (also called a virtual corporation or virtual organization) is an organization that uses
information technology to link people, organizations, assets, and ideas.
A virtual company uses IT to connect people, organizations, assets, and ideas, facilitating collaboration and
communication.
Inter-enterprise information systems link customers, suppliers, subcontractors, and competitors, facilitating
information exchange and enhancing supply chain management and coordination.

Creating a Virtual Company :( explanation of diagram)

A virtual company uses the Internet, intranets, and extranets to form virtual workgroups and support alliances
with business partners. They organize internally into process clusters and cross-functional teams linked by
intranets. These companies also establish alliances and extranet links, creating inter-enterprise information
systems with suppliers, customers, subcontractors, and even competitors. This enables virtual companies to
create flexible and adaptable virtual workgroups and alliances, strategically positioned to seize fast-changing
business opportunities.

The basic business strategies of virtual companies:

 Share infrastructure and risk with 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/customer loyalty.
 Shift from selling products to selling solutions.
Building a Knowledge Creating Company:
Building a knowledge-creating company involves fostering an environment that encourages and enables the
creation, sharing, and application of knowledge within the organization.

Knowledge-creating companies exploit two kinds of knowledge:

 Explicit Knowledge: This refers to data, documents, and information that is recorded or stored in computers
and can be easily communicated or documented.
Example: Databases containing customer information, sales records, and market research data.

 Tacit Knowledge: Tacit knowledge is the valuable expertise and practical know-how that employees possess
in their minds. It is gained through years of experience and is not easily written down or communicated.
Example: A chef's ability to create unique flavors and recipes based on their culinary expertise.

Knowledge Management:
Knowledge management is the practice of effectively managing and utilizing knowledge within an
organization to improve performance and achieve goals. It involves capturing, organizing, storing, sharing,
and applying knowledge to enhance collaboration, innovation, and decision-making.
.

Knowledge management techniques

Knowledge management can be viewed as three levels of techniques, technologies, and systems that promote
the collection, organization, access, sharing, and use of workplace and enterprise knowledge. It includes:
 Enterprise Intelligence:
 Leveraging organizational “know-how” --- Using the knowledge and expertise of employees to improve
performance.
 Performance support ----- Providing tools and resources to help employees in their work.
 Interacting with operational databases ----- Accessing real-time information from databases to make informed
decisions.
 Building expert networks ------ Connecting subject matter experts for collaboration and knowledge sharing.

 Information Creation, Sharing, and Management:

 Capturing & distributing expert stories --- Sharing experiences and lessons learned.
 Real-time information management --- Accessing and contributing to up-to-date information.
 Communication and collaboration ---- Using tools for effective teamwork and idea sharing.
 New content creation --- Encouraging the generation of new ideas and knowledge.

 Document Management:
 Accessing and retrieving --- Easily finding and accessing stored documents.
 Documents stored online --- Organizing documents in a logical and understandable way.
 Version control and security --- Managing document versions and protecting sensitive information.

Overall, these three levels of successful knowledge management creates techniques, technologies, systems, and
rewards for getting employees to share what they know and make better use of accumulated workplace and
enterprise knowledge. In that way, employees of a company are leveraging knowledge as they do their jobs and
enterprise knowledge. In that way, employees of a company are leveraging knowledge as they do their jobs.

Knowledge Management Systems

A Knowledge Management System (KMS) is an information technology-based system that helps organizations
collect, organize, store, retrieve, and share knowledge. It facilitates decision-making, problem-solving, and
innovation by making knowledge assets easily accessible and promoting collaboration among users.
Knowledge encompasses processes, procedures, patents, reference works, formulas, best practices, forecasts,
and fixes.
Knowledge management systems boost organizational learning, knowledge creation, and business
performance. They provide rapid feedback, drive behavior change, and integrate knowledge into processes,
products, and services. This results in an innovative, agile, and competitive company. Example: Real-world
knowledge management strategies.