Lecture 19 - Using IT for Competitive Advantage

Question 1

When can IT give a company competitive advantage? Analogy

Answer 1

• Only the race-car driver can take full advantage of the Porsche.
• It is not the information technology that gives a company the competitive advantage; it is the way people use the technology that makes the difference.

Question 2

Porter’s Five Forces Model (5 forces)

Answer 2

This model is useful for understanding the competitive forces within an industry. Consider the following five forces to better understand the relative attractiveness of an industry and the pressures from competitors:

1. Buyer power
2. Supplier power
3. Threat of substitute products or services
4. Threat of new entrants
5. Rivalry among existing competitors

Question 3

1. Buyer Power

High/Low?

Answer 3

o High when buyers have many choices and
o Low when their choices are few

• Companies that sell products and services want their customers to have low buyer power
e.g. Dell lets a customer customize the configuration of a computer so that it is unique.

Question 4

First-mover advantage

Answer 4

First-mover advantage refers to gaining market share by being the first to market a new innovation. This competitive advantage is fleeting because competitors will soon imitate the idea.

Question 5

2. Supplier Power

High/Low?

Answer 5

Supplier power is the opposite of buyer power
o High when buyers have few choices and
o Low when there are many choices.

Question 6

3. Threat of Substitute Products and Services

High/Low?

Answer 6

o High when there are many alternatives for buyers and

o Low when there are few alternatives.

Question 7

Switching cost

Answer 7

Switching cost is an expense that makes buyers reluctant to switch to another product or service. For example a customer may hesitate to switch to a competitor because he likes the free support given by a help line. Switching costs can reduce the threat of substitute products and services.

Question 8

4. Threat of New Entrants

High/Low?

Answer 8

o High when it is easy for competitors to enter the market

o Low when entry barriers are significant.

Question 9

Entry Barrier

Answer 9

An entry barrier is a product or service feature that customers have come to expect and that must be offered by an entering organization. For example, customers now expect all banks to provide ATMs.

Question 10

5. Rivalry Among Existing Competitors

High/Low?

Answer 10

o High when competition is fierce and

o Low when competition is more complacent.

Question 11

Porter’s three strategies that help beat the competition

Answer 11

1. Overall cost leadership
2. Differentiation
3. Focus

Question 12

Overall cost leadership

Answer 12

Overall cost leadership is offering the same or a better quality product/service at a price that is less than what any competitor is able to meet.

Eg.) Walmart

Question 13

Differentiation

Answer 13

Differentiation is offering a product or service that is perceived as being “unique” in the marketplace.

Eg.) Apple computers

Question 14

Focus

Answer 14

Focus is a strategy that offers unique products or services to particular buyers and/or targeting a specific geographic market.

o For example, a legal office may specialize in processing claims for injuries from car accidents.

Question 15

Two Complementary Strategy Frameworks

Answer 15

1. ) Top Line vs. Bottom Line

2. ) Run-Grow-Transform (RGT)

Question 16

Top Line

Answer 16

Reach new customers
Offer new products
Cross-sell services
Offer complementary products

Question 17

Bottom Line

Answer 17

Optimize manufacturing processes
Decrease transportation cost
Reduce cost of human capital
Minimize errors in a process

Question 18

Run-Grow-Transform (RGT)

Answer 18

Use the Run-Grow-Transform (RGT) framework to allocate the percentages of IT dollars that will be spent on various types of business strategies.
o Run – optimize existing activities and processes
o Grow – increase market reach and the number of products/services, expand market share, etc.
o Transform – use new and different business processes, move into new markets, etc.

Question 19

Strategic Alignment

Alignment Tasks:

Answer 19

o Ensure IT strategy aligned with business strategy
o Ensure IT delivers as promised
o Decide focus of IT resources
o Balance investments: support current enterprise vs. future vision

Question 20

Strategic Alignment

What to Spend on?

Answer 20

DON’T JUST SPEND $ ON IT:
1. At a Departmental level
2. As a regular increase over last year’s IT-$ expenditure.
INSTEAD, SPEND $ ON IT:
1. Only where it supports the BUSINESS strategy,
2. Cut departmental IT-$ if Department functions don’t contribute to strategy