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Competitive Strategy, Business Processes, and IT Structure Aligned

When an organization selects a competitive strategy, it designs business processes that include and link value-generating activities. The processes themselves will determine the organization’s IT requirements. It is therefore critical that businesses align their IT with their business objectives. Doing so requires them to do the following:

  • Identify business goals and objectives.

  • Break strategic goals into value activities and processes.

  • Identify specific measures to define success.

  • Decide how IT can help to achieve business goals.

  • Measure actual performance versus goals.

In Figure 1.3, the specific IT needed for the manufacturer would depend on its competitive strategy as well as where it feels it does or can add the most value.

For example, if the company is a low-cost business, it would want systems that help find and buy lower-cost raw materials and components, perhaps leveraging the Internet more on the procurement side to locate and negotiate with those type of suppliers. It might also want to utilize bar code technology to help speed orders and inventory through its finished goods warehouse. An example of this in the retail world is Walmart, which uses information systems to achieve the lowest operational costs and the lowest prices. Walmart’s inventory replenishment system sends orders to suppliers when purchases are recorded at cash registers; this helps the company minimize inventory at warehouses, reduce operating costs, and collaborate with manufacturers to improve forecast and replenishment speed, cost, and accuracy.

On the other hand, a company that has a more flexible, responsive strategy, inventory turns might not be a priority, but inventory availability, shorter lead times, and customer service might be. As a result, such a company might want systems and technology that help perform quicker changeovers on manufacturing equipment, automated distribution management systems for orders to be processed more quickly, and tight integration with key customers to determine its ever-changing product and service requirements. Companies utilizing this type of competitive strategy, such as Dell Computer, may use information systems to customize and personalize products to fit specifications of individual consumers. At Dell’s e-commerce site, customers select the options they desire and order computers custom built to their specifications in a short amount of time. Dell’s assemble-to-order system gives the company a significant competitive advantage.

Other strategies include:

  • Focusing on a market niche—An organization may use information systems to enable specific market focus and serve a narrow target market better than competitors. This strategy involves analyzing customer buying habits and preferences and making advertising pitches to smaller and smaller target markets.

  • Strengthening customer and supplier relationships—An organization may establish strong links to customers and suppliers while increasing switching costs and loyalty. Automakers use IS to facilitate direct access from suppliers to production schedules so that they can improve their forecasts and schedules. Many e-commerce sites keep track of user preferences for purchases and suggest titles to existing customers.

As in many other aspects of the business world, with competitive strategy there are multiple ways to do things. For example, Dell strives for both low cost and a responsive, customized product, and it is very successful, with inventory turns of 90 times per year and a lead time for a customized computer of around 4 days.

In addition, the Internet has had a huge impact on competition and has transformed many industries. The Internet has reduced the costs of operating globally, enabling smaller businesses to compete on a global scale and helping to establish new products and services with faster time to market. It has also increased the bargaining power of customers and suppliers through transparency and scope and speed of communication.

Using IS to gain a competitive advantage requires coordination of people, process, and technology, which as will discuss throughout this book (see Figure 1.4).

Figure 1.4

Figure 1.4 People, Process, and Technology

According to Ramakrishman and Testani, “Far too often business transformation efforts concentrate on the process improvement strategies and business process reengineering; while essentially ignoring the people aspect of the change initiative. Subsequently, these transformation initiatives do not achieve their desired results. Studies have shown that approximately three quarters of business re-engineering efforts do not achieve their objectives and subsequently do not sustain themselves over the long term, and one of the most commonly cited reasons for their failing is due to the lack of focus on the organization’s culture.” By aligning people, process, and technology, companies can develop “critical organizational competencies around organizational culture transformation and process improvement; resulting in a more effective and sustainable change effort” [Ramakrishman and Testani, 2011].

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