Chapter 02 – Competing with Information Technology
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2 Competing with Information Technology
CHAPTER OVERVIEW
Chapter 2: Competing with Information Technology introduces fundamental concepts of competitive
LEARNING OBJECTIVES
After reading and studying this chapter, you should be able to:
1. Identify several basic competitive strategies and explain how they use information technologies to
confront the competitive forces faced by a business.
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SUMMARY
• Strategic Uses of Information Technology. Information technologies can support many competitive
• Building a Customer-Focused Business. A key strategic use of Internet technologies is to build a
company that develops its business value by making customer value its strategic focus. Customer-focused
• Reengineering Business Processes. Information technology is a key ingredient in reengineering business
• Becoming an Agile Company. A business can use information technology to help it become an agile
company. Then it can prosper in rapidly changing markets with broad product ranges and short model
• Creating a Virtual Company. Forming virtual companies has become an important competitive strategy
in today’s dynamic global markets. Internet and other information technologies play a key role in providing
• Building a Knowledge-Creating Company. Lasting competitive advantage today can only come from
the innovative use and management of organizational knowledge by knowledge-creating companies and
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KEY TERMS AND CONCEPTS
1. Agile Company (62):
An organization with the ability to profitably operate in a competitive environment of continual and
2. Business Process Reengineering (58):
3. Competitive Forces (46):
A business must confront:
1) rivalry of competitors within its industry
4. Competitive Strategies (49):
A business can develop:
1) cost leadership
5. Create switching costs (52):
A strategy designed to increase the cost in time, money, effort, and inconvenience that it would take a
customer or supplier to switch its business to a firm’s competitors.
6. Customer value (54):
The customer perceives the value or benefit associated with a given transaction or business
7. Interenterprise information systems (64):
These systems consist of extranets linking suppliers, customers, subcontractors, and competitors
together.
8. Knowledge-Creating Company (66):
Also known as “learning organizations”, are companies that consistently create new business
9. Knowledge Management System (66):
An information system that helps manage organizational learning and business know-how. These
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10. Leverage investment in IT (52):
11. Lock in Customers and Suppliers (50):
A business may lock in customers and suppliers by building valuable relationships with customers or
by intimidating managers into accepting a less profitable relationship.
12. Raise Barriers to Entry (52):
13. Strategic Information System (46):
14. Value Chain (56):
A series of activities with each activity adding value to an organization’s products and services.
15. Virtual Company (64):
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ANSWERS TO REVIEW QUIZ
Q.
A.
Key Term
Q.
A.
Key Term
1
3
Competitive forces
9
10
Leverage investment in IT
2
4
Competitive strategies
10
2
Business process reengineering
3
12
Raise barriers to entry
11
1
Agile company
4
11
Lock in customers and suppliers
12
15
Virtual company
5
5
Switching costs
13
8
Knowledge-creating company
6
13
Strategic information systems
14
9
Knowledge management system
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ANSWERS TO DISCUSSION QUESTIONS
1. Suppose you are a manager being asked to develop computer–based applications to gain a
competitive advantage in an important market for your company. What reservations might you have
about doing so? Why?
Unless the individual is familiar with the tools and processes involved in developing information
technology applications, they will have a high level of apprehension. Reservations would include the
2. How could a business use information technology to increase switching costs and lock in its
customers and suppliers? Use business examples to support your answers.
Switching Costs
A business might undertake projects to integrate some of its information systems with its customers’
systems in order to provide them with more timely, accurate, and useful information. The business
3. How could a business leverage its investment in information technology to build strategic IT
capabilities that serve as a barrier to new entrants into its markets?
Businesses may leverage its IT platforms by connecting them with their customers and suppliers to
4. Refer to the Real World Case on quantifying IT risks and value in the chapter. Why do you
think that the “IT as a cost” mindset is so prevalent among organizations? Relate your answer to the
discussion about technology as a competitive advantage or a competitive necessity in the chapter.
Mindset
Some elements of IT are much like a utility. In those cases, estimating IT’s value is about as difficult
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5. What strategic role can information play in business process reengineering?
Information plays a critical role in BPR initiatives. First, information about existing operations serves
6. How can Internet technologies help a business form strategic alliances with its customers,
suppliers, and others?
Information technology can help a business form strategic alliances with its customers, suppliers, and
7. How could a business use Internet technologies to form a virtual company or become an agile
competitor?
Virtual company:
Example: a person or company could use the Internet to acquire customers and then farm out the work
to suppliers. A simple example of this can be found managing contractors. A company solicits
8. Refer to the Real World Case on companies using smartphones in the chapter. Do you think
smaller companies like Lloyd’s Construction are ready for large-scale implementations of technology
in their business? What could they do to prepare for those implementations? Use examples to
illustrate your answer.
Small organization benefits – smart phones are simply advanced communications devices with the
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9. Information technology can’t really give a company a strategic advantage because most
competitive advantages don’t last more than a few years and soon become strategic necessities that
just raise the stakes of the game. Discuss.
Information technology for early innovators can give a company a temporary competitive advantage.
Although technology changes at a rapid pace, the first company to gain acceptance stands to capture a
10. MIS author and consultant Peter Keen says: “We have learned that it is not technology that
creates a competitive edge, but the management process that exploits technology.” What does he
mean? Do you agree or disagree? Why?
What does it mean? Keen recognizes that buying and installing a new application simply because a
competitor has it does little to guarantee its successful application.
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ANSWERS TO ANALYSIS EXERCISES
1. End-User Computing: Skill Assessment
Note that students tend to overestimate their computing skills when self-reporting.
a. Word processing: About how many words per minute can you type? Do you use styles to manage
document formatting? Have you ever set up your own mail merge template and data source? Have
you created your own macros to handle repetitive tasks? Have you ever added branching or looping
logic in your macro programs?
Most students feel they are competent at word processing if they can type, save, and print their papers.
b. Spreadsheets: Do you know the order of operations your spreadsheet program uses (what does
“_5*2^2– 10” equal)? Do you know how to automatically sort data in a spreadsheet? Do you know
how to create graphs and charts from spreadsheet data? Can you build pivot tables from spreadsheet
data? Do you know the difference between a relative and a fixed cell reference? Do you know how to
use functions in your spreadsheet equations? Do you know how to use the IF function? Have you
created your own macros to handle repetitive tasks? Have you ever added branching or looping logic
in your macro programs?
Students should be able to calculate the answer to the equation provided without programming it into a
c. Presentations: Have you ever used presentation software to create presentation outlines? Have you
added your own multimedia content to a presentation? Do you know how to add charts and graphs
from spreadsheet software into your presentations so that they automatically update when the
spreadsheet data change?
Students should be able to prepare presentation outlines that include graphics imported from or linked
d. Database: Have you ever imported data into a database from a text file? Have you ever written
queries to sort or filter data stored in a database table? Have you built reports to format your data
for output? Have you built forms to aid in manual data entry? Have you built functions or programs
to manipulate data stored in database tables?
Most students will have very little database experience. Yet, managers can take great advantage of a
Chapter 02 – Competing with Information Technology
2. Marketing: Competitive Intelligence: Strategic Marketing
Note: encourage students to use the Internet and your institution’s career services department to gather
a. Product: Which business majors are presently in greatest demand by employers? Use entry-level
salaries as the primary indicator for demand.
b. Product: Which colleges or universities in your region pose the greatest competitive threat to
students with your major?
c. Price: What is the average salary for entry-level employees in your major and geographic region?
Is salary your top concern? Why or why not?
Answers to this question will depend on the year, region, and major researched. Place-bound students
d. Place: Which areas of the country are currently experiencing the greatest employment growth?
e. Promotion: What is your marketing plan? Describe how you plan to get your name and
qualifications in front of prospective employers. How can the Internet help you get noticed?
Many institutions offer a resume publishing service for their students. The Internet also offers students
with the unprecedented ability to self-publish. Students can use this ability to publish their own
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3. Competing Against Free: Wikipedia Faces Down Encyclopedia Britannica
a. How does the Wikimedia Foundation meet the criteria for an agile company?
The various Wiki-related knowledge bases accommodate hundreds of languages. It provides
b. How does the Wikimedia Foundation meet the criteria for a virtual company?
At present, the Wiki Foundation provides information on-line only. It has no storefront. What’s more,
c. How does the Wikimedia Foundation meet the criteria for a knowledge-creating organization?
Not only does the Wikimedia Foundation produce readily editable information through very powerful
d. How would you recommend that Encyclopedia Britannica adapt to this new threat?
One obvious approach would merge the OED methodology with Wikipedia’s to produce a hybrid. This
approach is not without precedent. The Oxford English Dictionary was originally created in the 19th