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
advantage through information technology and illustrates major strategic applications of information
systems.
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.
SUMMARY
• Strategic Uses of Information Technology. Information technologies can support many competitive
strategies. They can help a business cut costs, differentiate and innovate in its products and services,
technology for strategic advantage.
• 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
Chapter 02 – Competing with Information Technology
• 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
• 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
KEY TERMS AND CONCEPTS
1. Agile Company ():
An organization with the ability to profitably operate in a competitive environment of continual and
2. Business Process Reengineering ():
The fundamental rethinking and radical redesign of business processes to achieve dramatic
improvements in cost, quality, speed, and service.
3. Competitive Forces ():
A business must confront:
1) rivalry of competitors within its industry
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4. Competitive Strategies ():
A business can develop:
1) cost leadership
2) product differentiation
5. Create switching costs ():
6. Customer value ():
The customer perceives the value or benefit associated with a given transaction or business
7. Interenterprise information systems ():
These systems consist of extranets linking suppliers, customers, subcontractors, and competitors
together.
8. Knowledge-Creating Company ():
9. Knowledge Management System ():
10. Leverage investment in IT ():
11. Lock in Customers and Suppliers ():
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 ():
13. Strategic Information System ():
14. Value Chain ():
A series of activities with each activity adding value to an organization’s products and services.
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15. Virtual Company ():
Also called a virtual corporation or virtual organization, is an organization that uses information
technology to link independent people, assets, and ideas.
ANSWERS TO REVIEW QUIZ
Q.
A.
Key Term
Q.
A.
Key Term
1
Competitive forces
9
Leverage investment in IT
2
Competitive strategies
10
Business process reengineering
3
Raise barriers to entry
11
Agile company
4
Lock in customers and suppliers
12
Virtual company
5
Switching costs
13
6
Strategic information systems
14
Knowledge management system
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
Chapter 02 – Competing with Information Technology
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. Review the Real World Challenge introduced in the chapter. In such a major transformative
project where no one can really envision what the end product (or end company) will look like,
how should organizations set out to create these technology-enabled solutions? What kind of
approaches would work best? Worst?
The first thing to do is an in-depth analysis of just what information is needed/wanted by the users of
the system. This will determine how the system will look and what it will do. This means a serious
analysis of the jobs that the employees will do, their information needs, and their outputs. Once that is
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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
as a baseline for future comparison. Second, as new processes take shape, information in the form of
feedback allows managers to evaluate and control these new processes. A thorough understanding of
6. How can Internet technologies help a business form strategic alliances with its customers,
suppliers, and others?
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
customers for contract work (customers) and then solicits reliable contractors who can do this work
8. Consider the Real World Solution discussed in the chapter. Do you think CenterPoint
Properties’s success is the result of the new business model or the new technology deployed to
support it (i.e., CUB)? Is it possible to distinguish one from the other? What are the implications
for other companies as they seek to reinvent themselves in the future?
The new business model is, of course, very important to this endeavour. However, without the CUB
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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
substantial market share before its competitors can catch up. Apple’s iPod serves as a good example.
By the time that other organizations caught up, the Apple had realized a large market share and
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. It is possible to “throw money at a
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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
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e. File Management: Can you store or locate a specific file on a particular storage device? If you
receive an attachment on an email can you store it on your hard drive in a location where you
can find it again? Can you create specific folder for a group of related files, then navigate to it
when necessary, or direct someone else to that location?
Many computer users do not know how to navigate around a hard drive or other storage device (e.g., a
f. Internet: Do you know how to navigate your way around the Internet? If someone gives you a
specific URL, can you access that location? Do you know what a URL is? Can you modify your
home page on your favorite Web browser? Do you know how to use an anti-virus program?
Can you use the Status Bar to determine if a link is trying to spoof you to another site? Email is
arguably the largest use of the Internet today. Can you send and receive email, build a mailing
list, and can you send and receive attachments?
Using the Internet is considered a basic computer skill in today’s world. Anyone using the Internet
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
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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
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
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e. How does Wikiversity compare as an educational resource to traditional colleges and schools?
How would a degree earned online from wikiversity.com be viewed as compared to a degree
earned in a traditional learning environment? What learning resources are at Wikiversity that
you can use to further your education right now?
Wikiversity is in the very early stages of development. It is not yet accredited by any recognized
4. Knowledge Management: Knowing What You Know
Product Websites
Exchange and Domino are the leading, proprietary e-mail and groupware vendors. WorkSite is one of
the most sophisticated and widely adopted 3-tier, web-based applications available.
a. What steps might a manager take to encourage his or her employees to use the organization’s
knowledge management system?
Managers might consider any or all of the following:
• Train employees about how to use knowledge management tools.
b. Should managers set minimum quotas for system usage for each employee? Why or why not?
Yes.
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c. Aside from setting employee usage quotas, how might an organization benefit from knowledge
management system usage statistics?
Managers should primarily reflect on the processes affecting the numbers. They should ask
themselves several questions:
• Have my employees received sufficient training?
5. Crowd-sourcing Ad Reviews
Do you Like This Ad?
Marketers dream of their ads going viral, but what works, what flops, and when is it time to change
Questions:
a) List each type of user-generated feedback Facebook automatically monitors.
The article identifies the following types of user generated feedback:
b) How do the users benefit?
Users find Facebook more “enjoyable”.
c) How do advertisers benefit?
Developers (or advertisers) no longer feel “nitpicked”. Implied, though not stated explicitly, developers
d) How does Facebook benefit?
Since the system is automated, it’s scalable. This means they won’t have to keep adding employees to
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e) In your opinion, what obstacles will competitors have to overcome to compete with Facebook‘s
approach to managing advertising?
This question asks students to think beyond the article’s content. Potential challenges include:
ANSWERS TO REAL WORLD CHALLENGE/SOLUTION
Real World Challenge
1. What do you think will be the major challenges Center-Point will face as it embarks on its
transformation from real estate manager into a provider of logistic solutions? What part of those
challenges will be related to IT? What does your answer say about the importance of IT in
organizations today?
Major challenges
• managing the strategic shift
2. What are some of the alternatives that CenterPoint has for procuring the new functionality
required from their IT for the new business model? What are the advantages and disadvantages
of each of those alternatives?
IT Alternatives
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Disadvantages
o requires updating IT employee skill sets
• purchase off-the-shelf software (OTS)
Advantages
o saves time
Advantages
o instant access to expertise
o may be cheaper than developing the system in-house
• software as a service (SaaS)
Advantages
o faster to implement
3. Is it a good idea to roll out a new, large IT implementation at the same time the company is
embarking on a major transformation? On the other hand, is it possible to radically transform a
company without major changes in IT?
Do large IT implementations and radical transformation go together?
• Yes
Is it possible to transform an organization without a large concurrent IT implementation?
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Real World Solution
1. To build or to buy is one of the central questions when it comes to provisioning technologies.
How did Center-Point choose what to buy and what to develop internally? What lessons can be
synthesized from its approach that can be applied to other companies in the future?
Methodology
• purchase applications to support common real estate functions
2. What is your opinion on whether CenterPoint should possibly license CUB or act as a service
provider? Do you think this would dilute CenterPoint’s competitive position? What are the
advantages and disadvantages of moving forward with this idea?
Advantages to becoming a service provider#
• creates a barrier to entry for competitors
ANSWERS TO REAL WORLD CASES
RWC 1: How to Win Friends and Influence Business People
Case Study Questions
1. By changing the way his group talks about IT investments, CIO Tim Schaefer is trying to change the
way the rest of the company sees IT. Why do you think this is necessary? What would be the prevailing
mindset about IT in his company, such that he needs to do something about it? Provide some examples
of how IT may be regarded in this organization.
Necessity
It’s important for IT to speak and understand the language or languages of the businesses they support. In
Chapter 02 – Competing with Information Technology
2. Chip Gliedman of Forrester Research breaks down IT risks into implementation and impact
considerations. Why do you think these are so difficult to manage? What makes IT investments
different from investments in other areas of a company?
Management difficulty
IT projects are difficult and the terms “implementation” and “impact” cover all project lifecycle aspects
except maintenance. IT implementations pose their own special challenges because they frequently involve
3. Do you agree with the notion that IT investments can be treated in the same manner as financial
investments, and similarly quantified by putting a dollar value to them? Why or why not? Would your
answer change depending on the type of IT investment under consideration?
Yes
Cost, benefit, risk analysis typically provide enough information to make an informed business investment
Real World Activities
1. Do you agree with the approach and metrics used by Northwestern Mutual to value their IT
investments?
Agree
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2. Can you think of alternative ways, and how those might stack up against those discussed in the case?
Break into small groups with your classmates to discuss the pros and cons of alternative approaches to
valuing the impacts of IT in a company.
General approach
The approach in this case involves providing information to business leaders using vocabulary they
Approach – IT centric
This approach places IT at the organization’s core, where IT leaders make all the key IT-related decisions.
Approach – Business centric
IT leaders provide IT cost and risk information to business leaders who then make all project selection
Approach – Decentralized
With this approach, there is no central IT organization. Business leaders are free to acquire what they need,
when they need it so long as it falls within their budget. This approach places the least demand on project
valuation. Accountability simply falls on the business leader to produce results.
Valuing
When evaluating the legs on a three legged stool, how does one “value” an individual leg? Without any one
3. Go online and search for examples of IT projects that have been successful, as well as those that have
failed. Make a list of the different factors that seem to influence the outcome of these implementations.
Can you group them into the categories discussed in the case? Which seem to be the most important?
Prepare a presentation to share your findings.
Examples
Atwood, Jeff. “The Long, Dismal History of Software Project Failure”
6
Factors
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Most important factor
In this author’s opinion, the most important factor in software project failure is the lack of industry
RWC 2: For Companies Both Big and Small
Case Study Questions
1. In which ways do smartphones help these companies be more profitable? To what extent are
improvements in performance coming from revenue increases or cost reductions? Provide
several examples from the case.
Profitability:
• Reduced time it takes to close a purchasing deal
• Reduced inventory levels
2. The companies described in the case encountered a fair amount of resistance from employees
when introducing smartphone technologies. Why do you think this happened? What could
companies do to improve the reception of these initiatives? Develop two alternative propositions.
Employee resistance – CPS: management could not visualize the value these devices would provide.
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Potential solutions: given the successes experienced by both CPS and Lloyd’s Constructions, students
should learn from their example:
• Implement small, low cost, low risk pilot projects to demonstrate the technology’s value
3. CPS Energy and Lloyd’s Construction used smartphones to make existing processes more
efficient. How could they have used the technology to create new products and services for their
customers? Include at least one recommendation for each organization.
The main point of this question is “how”, but students may well focus on “what” instead. On the
“how” side, both organizations may create new products by providing their customers with access to
Real World Activities
1. In addition to the companies featured in the case, others like FedEx and UPS, which have large
mobile workforces, heavily use mobile communication technologies. What other companies could
benefit from these innovations?
Search Terms: “mobile workforce automation” + “case studies”
A few examples:
• Full service car rental agencies such as Alamo, Avis, Hertz, and National.
2. Go online and research uses of smartphones in industries different from the ones reviewed here.
Prepare a report to share your findings.
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3. Use the Internet to research the latest technological developments in smartphones, and discuss
how those could be used by companies to deliver value to customers and shareholders.
Search Terms: “smartphone” + “case studies”.