Chapter 2 Competing with Information
1. Identify several basic competitive strategies and explain how they can use
information technologies to confront the competitive forces faced by a
2. Identify several strategic uses of information technologies for electronic
business and commerce, and give examples of how they give competitive
advantages to a business.
3. Give examples of how business process reengineering frequently involves the
strategic use of E-business technologies.
4. Identify the business value of using E-business technologies for total quality
management, to become an agile competitor, or to form a virtual company.
5. Explain how knowledge management systems can help a business gain
6. Identify and evaluate several factors that could help a company sustain a
strategic competitive advantage
Chapter 2 Outline
Section I: Fundamentals of Strategic Advantage
Real World Case: General Electric Company: Evaluating E-Business Strategies
Using Information Technology for Competitive Advantage
Competitive Strategy Concepts
Strategic Uses of Information Technology
The Value Chain and Strategic IS
Identifying e-Business and e-Commerce Strategies
Section II: Using Information Technology for Strategic Advantage
Strategic Uses of IT
Real World Case: McDonald's and American Express: E-Commerce Spinoff
Building a Customer-Focused e-Business
Reengineering Business Processes
Improving Business Quality
Becoming an Agile Company
Creating a Virtual Company
Building a Knowledge-Creating Company
; 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, promote growth,
develop alliances, lock in customers and suppliers, create switching costs,
raise barriers to entry, and leverage its investment in IT resources. Thus,
information technology can help a business gain a competitive advantage in its
relationships with customers, suppliers, competitors, new entrants, and
producers of substitute products. Refer to Figures 2.3 and 2.5 for summaries of
the uses of information technology for strategic advantage.
; Identifying e-Business and e-Commerce Strategies. The Internet, intranets,
extranets, and other Internet-based technologies can be used strategically for
e-business and e-commerce capabilities that provide competitive advantage.
This may result in major improvements in business efficiency and
effectiveness, global market penetration, transforming products and services,
and developing strategic applications and relationships with customers and
; Building a Customer-Focused e-Business. A key strategic use of Internet
technologies is to build an e-business that develops its business value by
making customer value its strategic focus. E-business enterprises use Internet,
intranet, and extranet e-commerce websites and services to keep track of their
customers' preferences; supply products, services, and information anytime,
anywhere; and provide services tailored to the individual needs of their
; Reengineering Business Processes. Information technology is a key
ingredient in reengineering business operations by enabling radical changes to
business processes that dramatically improve their efficiency and effectiveness.
Internet technologies can play a major role in supporting innovative changes
in the design of work flows, job requirements, and organizational structures in
; Improving Business Quality. Information technology can be used to
strategically improve the quality of business performance. In a total quality
management approach, IT can support programs of continual improvement in
meeting or exceeding customer requirements and expectations about the
quality of products, services, customer responsiveness, and other features. ; 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 lifetimes in which it must
process orders in arbitrary lot sizes, and can offer its customers customized
products while maintaining high volumes of production. An agile company
depends heavily on Internet technologies to help it be responsive to its
customers with customized solutions to their needs and cooperate with its
customers, suppliers, and other businesses to bring products to market as
rapidly and cost-effectively as possible.
; 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 an important role in providing computing
and telecommunications resources to support the communications,
coordination, and information flows needed. Managers of a virtual company
depend on IT to help them manage a network of people, knowledge, financial,
and physical resources provided by many business partners to quickly take
advantage of rapidly changing market opportunities.
; Building a Knowledge-Creating Company. Lasting competitive advantage
today can only come from innovative use and management of organizational
knowledge by knowledge-creating companies and learning organizations.
Internet technologies are widely used in knowledge management systems to
support the creation and dissemination of business knowledge and its
integration into new products, services, and business processes
Self Assessment (Chapter 2 Test)
Self Assessment Tests cover three kinds of form, that is choose the True or False,
Multiple Choice and Completion Statement.
Multiple Choice Quiz
1. A cost leadership strategy can be summarized as:
a) Providing products with features acceptable to customers at the lowest
b) Providing products with features that are very expensive so that the price of
the product is very low
c) Providing products that are so unique that customers are willing to pay a
d) Focusing on a few unique features for which customers are willing to pay a
2. Wal-Mart intends to form alliances with other companies as it pursues its ______
business-level strategy through Internet sales.:
a) Cost leadership
b) Focused differentiation
c) Focused cost leadership
d) Integrated cost leadership/differentiation.
3. Product differentiation refers to the:
a) Ability of the buyers of a product to negotiate a lower price
b) Response of incumbent firms to new entrants
c) Belief by customers than an existing product is unique
d) Fact that as more of a product is produced the cheaper it becomes per unit. 4. Switching costs refers to the:
a) Cost to a producer to exchange equipment in a facility when new
b) Cost of changing the firm's strategic group.
c) One-time costs suppliers incur when selling to a different customer.
d) One-time costs customers incur when buying from a different supplier.. 5. Value creating primary activities include::
a) Purchasing raw materials and supplies
b) Developing an appropriate corporate structure
c) Selecting appropriate distribution channels
d) Planning corporate strategy and setting goals
6. The reinventing of processes within a business is called
a) Business process reengineering
b) Total quality management
c) Transnational transformation
d) None of the above
7. Total quality management (TQM) is a:
a) Managerial innovation emphasizing continuous improvement of every
b) Total company wide effort where the top management team of the firm seeks
to continuously improve the quality of products.
c) Total company wide effort in which the employees meet in small groups, or
circles, and seek to develop solutions to problems facing the firm and work
through any intergroup difficulties
d) Strategic action associated with a differentiation strategy in which
competitive advantage is assured to the firm
Fill in the Blanks
1. A cost strategy is a competitive strategy by which a
firm seeks to find ways to use information technology to help suppliers or
customers reduce their costs of doing business, thereby gaining a competitive
advantage for itself
2. A(n) strategy is a competitive strategy by which a firm
seeks to develop unique products and services, or enter into unique markets or
3. Investments in information technology can allow a firm to
in customers and suppliers by building valuable new
relationships with them.
4. The five primary activities identified by Michael Porter as being a part of the
value chain are: inbound logistics, , outbound logistics,
market and sales, and customer service
5. is a fundamental rethinking and radical redesign of
business processes to achieve dramatic improvements in cost, quality, speed and
6. In , quality is defined as meeting or exceeding the
requirements and expectations of customers for a product or service 7. in competitive performance is the ability of a business
to prosper in rapidly changing, continually fragmenting global markets for
high-quality, high- performance, customer-configured products and services. True or False
1. The five forces model (buyers/suppliers/new entrants/substitutes/rivalry) is a
firm-level analytical model.(True or False)
2. Switching costs can be a source of entry barrier that may affect the threat of new
entrants to an industry.( True or False)
3. A value chain analysis should be conducted with competitor's capabilities in mind 4. In TQM, quality is emphasized from the customer's viewpoint, rather than the
producer's. .( True or False)
5. Agility in competitive performance is the ability of a business to prosper in
rapidly changing, continually fragmenting global markets for high-quality,
high-performance, customer-configured products and services.( True or False) 6. A virtual company (also called a virtual corporation or virtual organization) can
be defined as an organization that uses information technology in order to link
people, assets, and ideas.( True or False)
Chapter 2 Glossary
Business Process Reengineering (BPR): Restructuring and transforming a
business process by a fundamental rethinking and redesign to achieve dramatic improvements in cost, quality, speed, and so on.
Competitive forces: A firm must confront (1) rivalry of competitors within its industry, (2) threats of new entrants, (3) threats of substitutes, (4) the bargaining power of customers, and (5) the bargaining power of suppliers
Competitive strategies: A firm can develop cost leadership, product differentiation, and business innovation strategies to confront its competitive forces. Locking in customers and suppliers: Building valuable relationships with
customers and suppliers that deter them from abandoning a firm for its competitors or intimidating it into accepting less-profitable relationships.
Strategic information systems: Information systems that provide a firm with
competitive products and services that give it a strategic advantage over its competitors in the marketplace. Also, information systems that promote business innovation, improve business processes, and build strategic information resources for a firm.
Total quality management: Planning and implementing programs of continuous
quality improvement, where quality is defined as meeting or exceeding the requirements and expectations of customers for a product or service. Value chain :Viewing a firm as a series, chain, or network of basic activities that adds value to its products and services and thus adds a margin of value to the firm Virtual company: A form of organization that uses telecommunications networks and other information technologies to link the people, assets, and ideas of a variety of business partners, no matter where they may be located, in order to exploit a business opportunity.
Chapter 2 Real World Cases Studies
Real World Case 1: Suite Dreams
Hilton's customers can rest easy knowing the hotel chain has no reservations about delivering outstanding service.
For most enterprises 1999 was spent making sure that the new millennium would arrive without a technical hitch. Hilton Hotels Corp. was among those working to ensure its YK2 compliance, but the hoteling giant also took the arrival of 2000 as an opportunity to replace its legacy mainframe reservations system, as well as to implement a customer relationship management solution. Two years on, the famous hotel chain is glad it started the process when it did, because now it plans to deploy the system throughout its DoubleTree and Embassy Suites properties.
In hindsight it was a huge undertaking," says Joanie Flynn, vice president of leisure marketing for Hilton, headquartered in Beverly Hills, Calif. But one that has paid off for the hospitality chain, which develops, owns, manages, or franchises more than 1,800 hotels, resorts, and vacation properties.
"Hotel are a complex business," Flynn says. "We have small hotels, large hotels, and resorts. There are enhanced seasonal needs and some commonality across our business, but each type of hotel has special needs to be addressed."
Hilton spent start of the new millennium preparing to implement E.piphany Inc.'s E.5 suite of CRM reporting and analysis applications by replacing its mainframe reservations system. The hotel chain was
finally able to deploy the E.5 suite in June 2001.
Using the CRM solution Hilton is now able to analyze occupancy, booking patterns, and customer information. The software also allows all of Hilton's properties to gather and analyze guest information to help managers provide better service to their guests, administer corporate loyalty programs, and guide marketing campaigns for their respective hotels. As a result Hilton can manage its business more cost-effectively, and properly deploy its marketing resources.
Such analysis, which takes place using a Web-based interface, can happen in minutes. Using Hilton's intranet, hotel general managers, sales representatives, staff coordinators, and analysts can query Hilton's CRM system, which is tied to its new client/server reservations systems. This enables Hilton's users to generate specific reports immediately that show rate plans, numbers of people per reservation, the source of the reservations, and guest information. Data from the reports can be exported to Excel or PowerPoint, and system users can manipulate the graphs.
Users also can drill down for specific data. Managers can track national sales account production, for example, and sales representatives can find out who the top meeting planners are. Hilton can also determine if guests are traveling for business or leisure. "Before the new system we could never get down to the finer aspects," Flynn says. "Now we can get market segments, the actual books, and forecast advance booking patterns."
For travelers, that translates to an extra measure of service. Hotels are able differentiate their service based on customer information. This means that a traveler enrolled in Hilton's frequent traveler program who, for example, has stayed with Hilton 100 times is likely to get an upgrade or additional services, while a traveler with just one stay is likely to get additional information and help about the hotel's services, Flynn says.
A View of a Room
Prior to implementing E.5, gathering customer data was a laborious process. It often took anywhere from two to four weeks to generate static reports, and required the assistance of Hilton's IT department to create SQL queries. Because of those hurdles, only about 150 people a year throughout the Hilton Hotel family were accessing the old system, whereas over the past nine months more than 400 Hilton workers have had access to the Hilton CRM system.
Consequently it was vital that Hilton workers who would be using the system--from such departments as reservations, marketing, and sales--were given the necessary training to get them well-versed on the new system. "We were not only teaching our employees to use a new technology, but teaching them a new way of thinking about their business," Flynn says. "We needed to teach them how to associate the data together and make correct implementation decisions based on that data."
To accomplish that Hilton began offering a variety of training ranging from one hour, over-the-phone training to one-day, face-to-face, hands-on instruction.
Hilton also sends out a monthly newsletter dedicated to updates, best practices, training information,
and new report templates associated with its CRM solution. The company has set up HilSmart, a telephone support hotline based in Dallas, dedicated to answering questions about the CRM system.
Flynn says Hilton did not see training as a separate corporate expense, but rather viewed that cost as another part of rolling out and maintaining the new application.
Hilton would not give a specific dollar amount associated with purchase, implementation, maintenance of, and training associated with the CRM products. However, a basic solution from E.piphany starts at $250,000 and can go as high as $500,000.
Hilton did note that it was an early customer of E.piphany and took an ownership stake in the then-fledgling vendor. And although Hilton would not disclose the specific amount of its investment in E.piphany, Flynn says that Hilton made "a ton of money" when it sold its ownership in the firm.
Flynn also noted that at the time Hilton took an equity position in E.piphany, the two companies had also discussed a potential joint venture in which E.piphany would develop and sell a special CRM application targeted at the hospitality industry based on expertise gathered from its deal with Hilton.
For its part, Flynn says, Hilton has already received a return on its CRM investment. "The system costs less to maintain than our old mainframe system--we've saved on personnel and dramatically increased our productivity," she says.
But whether the ROI has translated into more business has yet to be seen, according to Flynn, who notes that the events of September 11 have hit the hospitality industry hard, making it difficult to determine a pattern.
But national events and a travel slow-down were not the only hurdles facing Hilton. Flynn says that deploying its CRM solution has its bumps--mostly due to the huge amount of historical data the company wanted to bring over from the old system, along with a transition that moved the companies IT department from its Beverly Hills headquarters to Memphis.
"Data validation took inordinately long," Flynn says. "If I were doing it again, I would not worry about the old data and just start fresh. I would also have waited until all the linkage issues with our other systems were worked out."
But Hilton is still hot on CRM and working to deploy other modules. The company plans to add E.piphany's Campaign Management and Real-Time. Campaign Management is used for planning, executing, and analyzing multichannel campaigns across all customer touch points. Real-Time provides a real-time marketing engine to give a single view of the customer and to personalize each interaction by building a profile for each visitor or customer with information drawn from multiple sources including customer databases, transaction systems, third-party data, and other sources. The system then selects the best offer for a particular person using up-to-the-second information.
Two years ago Hilton acquired Doubletree and Embassy Suites, growing its company from 250 to
nearly 2,000 properties. Hilton plans to role out all of its CRM applications to all of its properties over the next year.
"This is going to allow us to have a customer-centric view across all our brands," Flynn says. "That is very powerful and should translate to a huge return on investment."
In the future customers using Hilton's Web site who respond to "Where do you want to go next?" will receive well-timed offers for relevant itineraries. Hilton will eventually leverage E.piphany's ability to download customer profiles from third-party sources. When first-time users log onto Hilton's Web site, they will begin to see custom options and information derived from their third-party profiles. By correlating such e-commerce information with data gathered from hotels, phone reservations, and other sources, Hilton representatives could optimize both rates and occupancy. Eventually, Hilton is looking to have customer-specific information available to key service personnel throughout the system--from Hilton's reservations operators to desk clerks.
"This has transformed our staff's expectations and now they are thinking of new ways to help their business and offer better customer service," Flynn says.
Sidebar: Hilton Shares Its Success strategy
Even though most enterprises consider their individual CRM solutions to be a competitive advantage, that does not stop some CRM users from sharing the details of their implementation with other companies or even competitors.
A couple of times per quarter CRM vendor E.piphany holds formal roundtables that bring together three to four of its key customers to discuss the specifics of their CRM implementations, including the benefits they have reaped, the hurdles they faced, and everything in between.
"People who license our applications tend to be visionary about CRM in their organizations," says Mike Trigg, vice president of product management for E.piphany. "They are eager to talk about the problems they are facing and maybe find other users who can tell them how to solve the problems."
Joanie Flynn, vice president of leisure marketing for Hilton Hotels, which was an early adopter of E.piphany's E.5 CRM suite of products, says that she enjoys sharing the CRM expertise her company has gained with other companies.
"I've become evangelical about CRM and its benefits," says Flynn, who also noted that E.piphany recently introduced her to executives from another of its customer--starbucks--who were facing some implementation problems. Flynn says she was eager to share information with the Seattle-based coffee giant and to help the company solve some challenges that Hilton had already overcome."We were very sympathetic to their problems and it was great to be able to lend our expertise to help them," Flynn says.
Roger Siboni, CEO of E.piphany, says that delivering a CRM solution is not just about delivering good technology but about the process as well, and that letting customers share the good, the bad, and the ugly is a necessary part of the process.
"Sharing best practices between customers is good business for us and for them," Siboni says. "If I jumped up and down and talked about how efficient and effect our solution is, it would just fall on deaf ears. But letting existing and prospective customers share their experiences speaks volumes. These people have a big investment in a technology product and they want to learn as much as they can."--L.P.
Sidebar: 15 Minutes With E.piphany CEO Roger Siboni
Roger Siboni joined CRM software developer E.piphany in 1997 and helped lead the San Mateo, Calif.-based company through its successful September 1999 IPO. Prior to joining E.piphany, Siboni was deputy chairman and chief operating officer of KPMG Peat Marwick, where he spent his 20-year tenure helping technology start-ups develop into major public companies. Siboni has also played a role in the tech industry's legislative developments over the past decade. He has testified before the House Ways and Means Committee and the Treasury Department on behalf of the technology industry. Siboni serves on the boards of Active Software, FileNET, and the Walter A. Haas School of Business at the University of California at Berkeley.
Siboni recently spoke about the challenges and opportunities of CRM with business journalist Lisa Picarille for CRM magazine.
CRM: What is the single biggest problem facing enterprises implementing a CRM solution? Roger Siboni: The challenges that organizations face is that CRM has historically been all about driving a process that makes people and technology interface with customers more efficiently. CRM is in the process of and needs to evolve to be more customer-centric and customer specific. Instead of evaluating CRM by how fast you can take calls and get people off the phone, you have to think what customer is on the phone and what kind of interchange are you having with that customer. It's about driving CRM from process-centric to customer-centric.
CRM: What is the one piece of key advice that you would give managers implementing or upgrading CRM solutions?
Siboni: start with the customer, not the channel. The salesperson wants to do CRM. The marketing people want to do it. But it's not about the channel. It's about developing a holistic view of the customer and then driving a consistent view of that customer from all touch points with a company.
CRM: What is the biggest CRM development you see coming over the next year?
Siboni: There will be more and more activity centered around sharing knowledge about customers and offering a consistent and coherent customer experience between all touch points--the call center, the Web site, the sales department, etc.
CRM: What about over the next five years?
Siboni: As organizations become more automated there will be more pervasive and more and different ways to interact with customers 24/7. Organizations will be networked across different platforms--PDAs, ATMs, kiosks--and wherever and whenever the customer chooses to interface with