iPad 11:57 PM 1 37% HOMEWORK 2 HOMEWORK 2 11:58 AM Today HW2: Please do the CenterPoint Properties--Reinventing a Compnay With the help of IT Case from page 69-70. 2 questions are there. Due date: 09/18/2014 70 | Module 1 Foundation Concepts and clicking required before users could find what they were looking for. In CUB, 80 percent of the information is within one or fewer clicks of a mouse (fewer meaning that important data will be displayed in a pop-up window when a user hovers the pointer over an object). CUB also inte- grates RSS feeds so that users can get up-to-date informa- tion on important industry and market trends, and it implements enterprise search functionality in a single place: All data stores of the company can be searched with a single keyword search box at the top of the portal. The key to this effort has been the ability (and will- ingness) to pick and choose the best technology for each job, and make them all work together. This best-of-breed approach provides CenterPoint with a unique set of ap- plications well suited to their business needs; at the same time, the applications are highly modular and extensible for when those needs change—and they will change, that much is guaranteed. “CUB is less a story about imple- menting a single technology and more a case study of how to successfully integrate the best parts a given tech- nology has to offer into a cohesive system using progres- sive design techniques and pragmatic analysis of problem domains to efficiently support a business strategy,” says Zimmerman. While all of this was going on, CenterPoint Properties went private. In March 2006, the California Public Em- ployees' Retirement System (CalPers) agreed to purchase CenterPoint Properties. As the details of the deal were ironed out, one of the lead advisers to CalPers was not con- vinced: A relatively small Chicago firm with only a hun- dred employees would not be able to execute the vision that the executives had put in place—at least not in the time frame that was necessary for it to be successful. At that time, CenterPoint's CEO asked the CIO to give a demon- stration of CUB. That was all it took. “Had Center Point not had the foresight to invest early in this system to support and drive our new business model, we wouldn't have been able to go private and we'd be trad- ing at $25 per share [half of CalPers' purchase price] like our competition instead of experiencing double-digit growth. It was the straw that broke the camel's back," says Mike Mullen, CEO. CenterPoint has started to reap many of those benefits as CUB went online. The integrated nature of all data pro- vided, as well as the efficient and automated processing of routine transactions in the background, has freed property managers to concentrate on the most value-added aspects of the business. Their productivity has markedly gone up, as well. Today, Center Point estimates its property managers are handling twice as much square footage as their counterparts in other real estate companies. Faster and more accurate de- cision making, coupled with increased deal volume per employee—both of which have been made possible by CUB- have had a major impact on business results. CenterPoint has increased the turnover rate for properties from five or six years to three, which doubled the transaction volume the company can handle from the properties in its portfolio. Since CUB was implemented, CenterPoint has increased its investment volume by 80 percent and grown at an annual rate of 15 to 20 percent without an increase in staff. It is surprising how many companies have approached CenterPoint about purchasing or licensing CUB for their own internal use. Every time CenterPoint makes a sales pitch to a potential partner, they do a demonstration of CUB—pretty much like the one that convinced CalPers that CenterPoint was ready to make the vision a reality. Of- ten this demonstration becomes the focus of attention, and follow-up calls ensue from other real estate executives. CenterPoint is now considering the possibility of licensing the software or, even further, acting as a service provider to other companies in the industry. None of these were on the radar when CUB was first proposed, but that is what hap- pens when one company has a technology that is so far su- perior to anything else. “While many things contributed to our success—the development of our new business plan, and our evolution into a private company—it was CUB that ultimately made our vision a reality,” says Paul Fisher, CenterPoint's Presi- dent. “Developing CUB was worth every penny.” SOURCE: “CenterPoint Properties,” Computerworld Honors Program Case Study, www.centerpoint-prop.com, accessed May 9, 2011, and "Office Business Application at the Heart of Commercial Real-Estate Company's Success,” Microsoft Office System Customer Solution Case Study. QUESTIONS TO CONSIDER 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 inter- nally? What lessons can be synthesized from its approach that can be applied to other companies in the future? 2. What is your opinion on whether Center Point 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? real world SOLUTION CenterPoint Properties- Reinventing a Company with the Help of IT C enterPoint Properties is a large real estate com- pany making the transition into a world-class provider of intermodal transportation and logistics solutions. Such a radical transformation in its business model requires major changes in all aspects of the organization, from capital structure and ownership to the underlying technologies needed to run the new business. And that is where IT comes in. The challenge for CenterPoint is how to best deploy new applications and functionality for a business model that is largely unique and innovative, while at the same time keeping the day-to-day aspects of the real estate business chugging along. Early on, CenterPoint Properties realized that com- mercial software was not going to cut it, at least not completely. Although there is no shortage of good software on the market, most vendors typically focus on the more streamlined or commoditized part of the business: back-end processes. While those are certainly important, the company started looking for a solution that would provide all the functionality required by the new business model. “To be successful, we were going to have to buy what we could, develop what was unique and strategic, and then integrate it into a single system,” says Scott Zimmerman, Chief Information Officer at CenterPoint. Out of this vision, the CUB System (CenterPoint's Universal Business System) was born. Everyday real estate functions—the ones that are neither unique nor strategic—were addressed by implementing a leading real estate ERP package called Yardi. This allowed CenterPoint to benefit from a stable and well-tested plat- form that was very reliable and cost-efficient for the essen- tial transactions that all real estate companies have to deal with, such as sending rent statements, writing and process- ing checks, and so on. Because the underlying technology on which Yardi was built (the Microsoft.NET framework) was compatible with Center Point's infrastructure, develop- ers were able to tap into the functionality of Yardi directly from other parts of CUB, thus allowing multiple applica- tions to communicate with each other without human in- tervention. This was not as straightforward as it sounds; it was necessary to fly back and forth to Yardi's offices in California, and have a number of distance meetings between developer teams. Nevertheless, the benefits outweighed those costs. Today, large real estate projects are a team effort. Mem- bers of those teams may include CenterPoint employees, in Chicago or elsewhere—plus participants from the client company. Sometimes consultants to either of the two par- ties are also part of the team, and all of the various team members are likely to be geographically dispersed. In short, enabling collaboration is a key success driver for these efforts. To address this, CenterPoint developed a custom CRM (Customer Relationship Management) system on top of Microsoft's SharePoint 2007 platform. While Share- Point 2007 takes care of the “plumbing” (hosting Web sites, security and access issues, and storing all data), CenterPoint focuses on creating the tools they need. These include a separate Web site and blog for each different project that team members can use to keep updated about new develop- ments; the Web site and blog also function as a central re- pository of project information that everyone can access anywhere at any time. Instant Messaging and e-mail are in- tegrated so that all members are kept up-to-date on any new development in the project in their preferred way. The system also handles routing and approval of documents to the proper parties, as well as managing a digital library of all documents in the project—which are thus also available anytime, anywhere. The old saying that real estate is all about “location, location, location” also holds true for CenterPoint. In or- der to take advantage of the most recent breakthroughs on GIS (Geographic Information Systems) technology, CUB integrates GIS functionality with Microsoft's Virtual Earth Web service. Executives can then analyze existing or poten- tial properties by using maps and aerial images that are overlaid with demographic, market, census and economic data. These data can be rearranged to create maps exposing different aspects of the site, which are all color-coded. Ex- amples include vacancy and rent levels, new sales and con- struction, sale prices in the area, population growth, age and income, and any other relevant market trends. All of these pieces—and others still under development, are tied together by a common interface based on a mix of ASP.NET, AJAX and JavaScript. Having a single, unified “look and feel” for the application has contributed to greatly reduced training costs, as well as improved em- ployee productivity. Indeed, the underlying goal behind the custom interface was to minimize the amount of searching 69 68 Module 1 Foundation Concepts sites, groupware, data mining, knowledge bases, and online discussion groups are some of the key technologies that may be used by a KMS. Knowledge management systems also facilitate organizational learning and knowledge creation. They are designed to provide rapid feedback to knowledge work- ers, encourage behavior changes by employees, and significantly improve business performance. As the organizational learning process continues and its knowledge base expands, the knowledge-creating company works to integrate its knowledge into its business processes, products, and services. This integration helps the company become a more innovative and agile provider of high-quality products and tomer services, as well as a formidable competitor in the marketplace. Now let's close this chapter with an example of knowledge management strategies from the real world. Goodwin Procter Makes a Strong Case for Knowledge Management If anyone knows that time is money, it's an attorney · The 850 attorneys and their staff at Goodwin Procter LLP were spending too much time assembling documents and looking up information, which meant cases took more time than they should to proceed. The $611 million law firm's eight offices used seven different applications to manage more than 2 terabytes of data for Goodwin Procter's more than 60,000 cases—close to 10 million documents. CIO Peter Lane wanted to integrate the data. Using Microsoft SharePoint, his team created the Matter Page System as a hub through which attorneys could access business data and client information. What's more, the firm has been able to use the platform to share its notes and work in progress. It's now easy for an attorney to find a colleague who can help with a similar case. Matter Pages took a year to implement, but it immedi- ately changed how Goodwin Procter's attorneys work. When a client called with a question, finding the answer used to mean launching more than one application and looking up the data in different systems. Attorneys needed contact information, documents, billing information, and more. The process sometimes took hours. “Now, instead of having to launch the different systems from the desktop, or the Web interface, or the document management system, we were able to pull all of this information into a one-stop-shop view for the users in our company,” says Andrew Kawa, Goodwin Procter's development manager, who leads its system development efforts. The system increases efficiency for the attorneys because they can find previous matters that they or others have worked on and gain extra information much more quickly than before. They spend less time researching and more time moving a case forward. The initial success of Matter Pages has Lane investigating new SharePoint features, such as wikis and blogs. He expects to deploy these new capabilities widely over the next few months. For example, each matter has a wiki that is used to track notes, or other unstruc- tured data that relates to it. These notes are open for editing by all users. Blogs tend to be used for discussions that are not case-specific, although when a matter or set of matters apply to the topic of the blog, users can add links to related cases. “One of the IT goals is to take advantage of the new technology as it becomes available,” Lane adds. With that goal in mind, says Lane, the Matter Pages System won't ever truly be completed. Currently, Kawa is looking to integrate Goodwin Procter's patent and trademark information with data about their patent applications from the U.S. Patent and Trademark Office. The integration would allow attorneys to retrieve real-time information on their pending patents and actions they need to take. “I don't think we will ever declare the project done or say we don't have to put any more time or effort in,” he says. SOURCE: Jarina D'Auria, “Goodwin Procter Makes Strong Case for Knowledge Management,” CIO.com, August 1, 2008. Chapter 2 Competing with Information Technology 67 Leveraging organizational "know-how" Performance support Interacting with operational databases Building expert networks Enterprise Intelligence FIGURE 2.16 Knowledge management can be viewed as three levels of techniques, technologies, and systems that promote the collec- tion, organization, access, sharing, and use of workplace and enterprise knowledge. Information Creation, Sharing, and Management Capturing & distributing expert stories Real-time information management Communication and collaboration New content creation Accessing and retrieving documents stored online Document Management SOURCE: Marc Rosenberg, e-Learning: Strategies for Delivering Knowledge in the Digital Age (New York: McGraw-Hill, 2001), p. 70. . . . - - BUILDING A KNOWLEDGE-CREATING COMPANY LO 2-5 In an economy where the only certainty is uncertainty, the one sure source of lasting competitive advantage is knowledge. When markets shift, technologies proliferate, competitors multiply, and products become obsolete almost overnight, successful companies are those that consistently create new knowledge, disseminate it widely throughout the organization, and quickly embody it in new technologies and products. These activities define the “knowledge-creating” company, whose sole business is continuous innovation. Many companies today can only realize lasting competitive advantage if they be- come knowledge-creating companies or learning organizations. That means consis- tently creating new business knowledge, disseminating it widely throughout the company, and quickly building the new knowledge into their products and services. Knowledge-creating companies exploit two kinds of knowledge. One is explicit knowledge, which is the data, documents, and things written down or stored on com- puters. The other kind is tacit knowledge, or the “how-tos” of knowledge, which resides in workers. Tacit knowledge can often represent some of the most important informa- tion within an organization. Long-time employees of a company often “know” many things about how to manufacture a product, deliver the service, deal with a particular vendor, or operate an essential piece of equipment. This tacit knowledge is not re- corded or codified anywhere because it has evolved in the employee's mind through years of experience. Furthermore, much of this tacit knowledge is never shared with anyone who might be in a position to record it in a more formal way because there is often little incentive to do so or simply, “Nobody ever asked.” As illustrated in Figure 2.16, successful knowledge management creates tech- niques, technologies, systems, and rewards for getting employees to share what they know and make better use of accumulated workplace and enterprise knowledge. In that way, employees of a company are leveraging knowledge as they do their jobs. KNOWLEDGE MANAGEMENT SYSTEMS Making personal knowledge available to others is the central activity of the knowledge-creating company. It takes place continuously and at all levels of the organization. Knowledge management has thus become one of the major strategic uses of infor- mation technology. Many companies are building knowledge management systems (KMS) to manage organizational learning and business know-how. The goal of such systems is to help knowledge workers create, organize, and make available important business knowledge, wherever and whenever it's needed in an organization. This in- formation includes processes, procedures, patents, reference works, formulas, best practices, forecasts, and fixes. As you will see in Chapter 10, Internet and intranet Web 66 Module 1 Foundation Concepts Strategies of Virtual Companies FIGURE 2.15 The basic business strategies of virtual companies. Share infrastructure and risk with alliance partners. . Link complementary core competencies. Reduce concept-to-cash time through sharing. . Increase facilities and market coverage. . Gain access to new markets and share market or customer loyalty. . Migrate from selling products to selling solutions. Sysco: Transforming a Company with the Help of IT Sysco, headquartered in Houston, Texas, is a major distributor of food products to restaurants, schools, hospitals, and hotels and is also a provider of equipment and supplies to the hospitality and food service industries. Sysco employs approxi- mately 45,000 with sales for the 2010 fiscal year surpassing $37 billion. It operates more than 180 locations in the United States, Canada, and Ireland, from which it serves more than 400,000 customers. The company is organized into a series of large operating companies with geographical responsibilities, and a smaller group of specialty food companies that cater to particular segments of the market. Sysco has embarked on a new project to standardize and unify business processes across its operating companies and distribution centers. The over- arching goals of the effort are to increase efficiency and improve sales and marketing, as well as provide increased transparency through improved data management. Not surprisingly, IT is an integral part of this transformation. “This is more than an IT project—it is truly a business transformation,” says Jim Hope, executive vice president. “Using the power of SAP as the foundation for our transformation, Sysco intends to improve productivity, retain and expand business with existing customers, and understand where market opportunities lie so we can do a better job attracting and pursuing new business.” The company chose SAP Business Suite and Business Objects business intelligence platforms as the centerpieces after a series of pilots and demonstra- tions convinced senior management this was the go. As everybody in IT knows, one of the most important keys to the success of this kind of large project is executive commitment. And so Sysco started by getting this first, and then figuring out the details later. “We're starting to pilot some of the customer-facing applications, and in particular, an improved ordering platform for our customers,” said Mark Palmer, vice president of corporate communica- tion. “So far, we're very happy with what we're seeing.” These “details” include a four-pronged approach focused on getting more and better information into the hands of their sales associates (Sysco's main point of contact with customers), a Web-based complete order management system that will also assist customers with personalized recommendations, a consolidated back office that will be shared by all affiliates, and standardized reporting across the company that will provide management with up-to-date information on all aspects of operations. And all this will be done with commercial software that will replace existing stand-alone systems that just could not deliver anymore. “We have a tremendous opportunity to use technology to continue to sharpen our operations,” says Twila Day, senior vice president and chief infor- mation officer. “SAP is the best technology provider to help us with our plans to integrate all of our software needs into a single platform, giving us the visibility required to efficiently manage our business end-to-end.” way to SOURCE: Schneider, I. “Sysco Taps SAP For BI, CRM,” InformationWeek, May 6, 2010 and www.sysco.com, accessed May 9, 2011. Chapter 2 Competing with Information Technology 65 with its customers in virtual communities that help it be an agile innovator. As we will see repeatedly throughout this textbook, information technologies enable a company to partner with its suppliers, distributors, contract manufacturers, and others via col- laborative portals and other Web-based supply chain systems that significantly im- prove its agility in exploiting innovative business opportunities. . . . . . . . . . . CREATING A VIRTUAL COMPANY LO 2-4 In today's dynamic global business environment, forming a virtual company can be one of the most important strategic uses of information technology. A virtual company (also called a virtual corporation or virtual organization) is an organization that uses in- formation technology to link people, organizations, assets, and ideas. Figure 2.14 illustrates that virtual companies typically form virtual workgroups and alliances with business partners that are interlinked by the Internet, intranets, and ex- tranets. Notice that this company has organized internally into clusters of process and cross-functional teams linked by intranets. It has also developed alliances and extranet links that form interenterprise information systems with suppliers, customers, subcon- tractors, and competitors. Thus, virtual companies create flexible and adaptable virtual workgroups and alliances keyed to exploit fast-changing business opportunities. Virtual Company Strategies Why do people form virtual companies? It is the best way to implement key business strat- egies and alliances that promise to ensure success in today's turbulent business climate. Several major reasons for virtual companies stand out and are summarized in Figure 2.15. For example, a business may not have the time or resources to develop the nec- essary manufacturing and distribution infrastructure, personnel competencies, and information technologies to take full advantage of a new market opportunity in a timely manner. It can assemble the components it needs to provide a world-class solution for customers and capture the market opportunity only by quickly forming a virtual company through a strategic alliance of all-star partners. Today, of course, the Internet, intranets, extranets, and a variety of other Internet technologies are vital components in creating such successful solutions. FIGURE 2.14 A virtual company uses the Internet, intranets, and extranets to form virtual workgroups and support alliances with business partners. Alliance with Subcontractors Boundary of Firm Alliance with a Major Supplier Customer Response and Order-Fulfillment Teams Intranets Alliance with a Major Customer Extranets Manufacturing Teams Alliance with Small Suppliers Cross- Functional Teams Engineering Teams Alliance with a Competitor Who Provides Services That Are Complementary 64 Module 1 Foundation Concepts The best bet may be to put together all available data about business processes, assets and requirements, people, software, hardware, architecture, and compliance and present it with detailed alternatives—each with its advantages and disadvantages, benefits and consequences—to the business stakeholders, and let them make that decision. Inevitably, however, politics will raise its ugly head sooner or later. SOURCE: P. "To build to buy IT applications?” InfoWo February 13, 2006. BECOMING AN AGILE COMPANY LO 2-4 We are changing from a competitive environment in which mass-market products and services were standardized, long-lived, information-poor, and exchanged in one-time transactions, to an environment in which companies compete globally with niche market products and services that are individualized, short-lived, information-rich, and exchanged on an ongoing basis with customers. To be an agile company, a business must use four basic strategies. First, the business must ensure that customers perceive the products or services of an agile company as solutions to their individual problems. Thus, it can price products on the basis of their value as solutions, rather than their cost to produce. Second, an agile company cooper- ates with customers, suppliers, other companies, and even with its competitors. This cooperation allows a business to bring products to market as rapidly and cost-effectively as possible, no matter where resources are located or who owns them. Third, an agile company organizes so that it thrives on change and uncertainty. It uses flexible organiza- tional structures keyed to the requirements of different and constantly changing cus- tomer opportunities. Fourth, an agile company leverages the impact of its people and the knowledge they possess. By nurturing an entrepreneurial spirit, an agile company provides powerful incentives for employee responsibility, adaptability, and innovation. Figure 2.13 summarizes another useful way to think about agility in business. This framework emphasizes the roles that customers, business partners, and information technology can play in developing and maintaining the strategic agility of a company. Notice how information technology can enable a company to develop relationships FIGURE 2.13 How information technology can help a company be an agile com- petitor, with the help of customers and business partners. Type of Agility Description Role of IT Example Customer Technologies for building and enhancing virtual customer communities for product design, feedback, and testing Ability to co-opt customers in the exploitation of innovation opportunities As sources of innovation ideas As co-creators of innovation As users in testing ideas or helping other users learn about the idea eBay customers are its de facto product development team because they post an average of 10,000 messages each week to share tips, point out glitches, and lobby for changes . . Partnering Ability to leverage assets, knowledge, and competencies of suppliers, distributors, contract manufacturers, and logistics providers in the exploration and exploitation of innovation opportunities Technologies facilitating interfirm collaboration, such as collaborative platforms and portals, supply chain systems Yahoo! has accomplished a significant transformation of its service from a search engine into a portal by initiating numerous partnerships to provide content and other media-related services from its Web site Operational Ability to accomplish speed, accuracy, and cost economy in the exploitation of innovation opportunities Technologies for modulariza- tion and integration of business processes Ingram Micro, a global wholesaler, has deployed an integrated trading system allowing its customers and suppliers to connect directly to its procurement and ERP systems SOURCE: V. Sambamurthy, Anandhi Bhaharadwaj, and Varun Grover, “Shaping Agility through Digital Options: Reconceptualizing the Role of Information Technology in Contemporary Firms,” MIS Quarterly, June 2003, p. 246. Chapter 2 Competing with Information Technology 63 Reengineering Order Management . FIGURE 2.12 Examples of information technolo- gies that support reengineering the order management processes. Customer relationship management systems using corporate intranets and the Internet. Supplier-managed inventory systems using the Internet and extranets. Cross-functional ERP software for integrating manufacturing, distribution, finance, and human resource processes. . . . Customer-accessible e-commerce Web sites for order entry, status checking, payment, and service. Customer, product, and order status databases accessed via intranets and extranets by employees and suppliers. To Build or to Buy-Is That Really the Question? To build or to buy? Software, that is. This is one of the most enduring, persis- tent questions in the world of IT. Should a company license (i.e., buy) a com- mercial application that will do 75 percent of what is needed, or should it develop its own applications that will support the requirements as closely as possible? The traditional answer has been that one buys to standardize—that is, to automate necessary but not strategic business processes—and builds to compete—that is, to support those core processes that make your company different from its competitors. But things may be more complicated than that. In some cases, homegrown systems may currently be handling menial, less-than-strategic tasks, but switching costs make it difficult to replace them with commercial software. In other cases, packaged software may do exactly what the company needs, even if those needs are strategic in nature. Then, why develop your own? Many IT executives will evaluate commercial software before even consid- ering building their own. Buying commercial software as often as possible frees up resources for those times when you really, really need to build your own software. When making those decisions, it is important to understand the entire life cycle of software applications and not only the development stage. Many applications will last at least seven or eight years, and due to ongoing mainte- nance and improvements, 70 percent of the costs will be incurred after the software has been officially implemented. It thus seems that buying or building may be much more complicated than previously thought. Consider financial services giant Visa. Due to a major emphasis on security, reliability, and privacy concerns of its customers, Visa has an IT organization that is historically biased toward building in-house. This is also due to the sheer size of their global financial network—when you are that large, there is really nobody else you can turn to; all other provider organizations are small in comparison, and the benefits are just not there. However, even an IT organiza- tion that traditionally builds can turn to commercial software—even open- source software, of all things—when the economics make sense. Infrastructure and tools are just an example. “They work, and there is no competitive advantage to build,” says David Allen, a consultant who served as Visa's CTO for three years. "Those systems are built at a scale because you're leveraging the technology across many companies.” Further, the the company has embraced the availability of mature and reliable open-source tools, particularly in areas such as development, databases, and programming languages. “The combination of low-cost tools and having the source code available can be like getting the best of both worlds [of buying and building],” Allen says. “We have gotten as good if not better in deploying new services on open source as on commercially available software like Windows." 62 Module 1 Foundation Concepts FIGURE 2.10 Some of the key ways that business process reengineering differs from business improvement. Business Improvement Business Process Reengineering Level of Change Incremental Radical Process Change Brand-new process Improved new version of process Starting Point Existing processes Clean slate Frequency of Change One-time or continuous Periodic one-time change Time Required Short Long Typical Scope Narrow, within functions Broad, cross- functional Horizon Past and present Future Participation Bottom-up Top-down Path to Execution Cultural Cultural, structural Primary Enabler Statistical control Information technology Risk Moderate High SOURCE: Howard Smith and Peter Fingar, Business Process Management: The Third Wave (Tampa, FL: Meghan-Kiffer Press, 2003), p. 118. example, one common approach is the use of self-directed cross-functional or multi- disciplinary process teams. Employees from several departments or specialties, includ- ing engineering, marketing, customer service, and manufacturing, may work as a team on the product development process. Another example is the use of case manag- ers, who handle almost all tasks in a business process instead of splitting tasks among many different specialists. The Role of Information Technology Information technology plays a major role in reengineering most business processes. The speed, information-processing capabilities, and connectivity of computers and Internet technologies can substantially increase the efficiency of business processes, as well as communications and collaboration among the people responsible for their op- eration and management. For example, the order management process illustrated in Figure 2.11 is vital to the success of most companies. Many of them are reengineering this process with ERP software and Web-enabled e-business and e-commerce systems, as outlined in Figure 2.12. FIGURE 2.11 The order management process consists of several business processes and crosses the boundaries of traditional business functions. Business Processes Propos Commitment guration Credit Checking Delivery Billing Collections Business Functions Sales Manufacturing Finance Logistics Using Information Technology for Strategic Advantage STRATEGIC USES OF IT Organizations may view and use information technology in many ways. For exam- ple, companies may choose to use information systems strategically, or they may be content to use IT to support efficient everyday operations. If a company empha- sized strategic business uses of information technology, its management would view IT as a major competitive differentiator. They would then devise business strategies that use IT to develop products, services, and capabilities that give the company major advantages in the markets in which it competes. In this section, we provide many examples of such strategic business applications of information technology. See Figure 2.9. . . . . . . . . . REENGINEERING BUSINESS PROCESSES LO 2-3 One of the most important implementations of competitive strategies is business process reengineering (BPR), often simply called reengineering. Reengineering is a fundamental rethinking and radical redesign of business processes to achieve dra- matic improvements in cost, quality, speed, and service. BPR combines a strategy of promoting business innovation with a strategy of making major improvements to business processes so that a company can become a much stronger and more success- ful competitor in the marketplace. However, Figure 2.10 points out that although the potential payback of reen- gineering is high, so too is its risk of failure and level of disruption to the organi- zational environment. Making radical changes to business processes to dramatically improve efficiency and effectiveness is not an easy task. For example, many companies have used cross-functional enterprise resource planning (ERP) software to reengineer, automate, and integrate their manufacturing, distribution, finance, and human resource business processes. Although many companies have reported impressive gains with such ERP reengineering projects, many others either have experienced dramatic failures or did not achieve the improvements they sought. Many companies have found that organizational redesign approaches are an im- portant enabler of reengineering, along with the use of information technology. For FIGURE 2.9 Companies of all sizes can benefit from using smartphones to improve their business processes. ISRC News orier tyTwo 07 WELC verizon very OD Palm amarre customer DAS "The > ho M ERVUO ᎠᎴ Ꭼ3 , ᏡᎬ SOURCE: © The McGraw-Hill Companies Inc./John Flournoy. 61 60 Module 1 Foundation Concepts Support Processes Administrative Coordination and Support Services Collaborative Workflow Intranet Human Resources Management Employee Benefits Intranet Technology Development Product Development Extranet with Partners Procurement of Resources e-Commerce Web Portals for Suppliers Competitive Advantage Inbound Logistics Outbound Logistics Marketing and Sales Customer Service Operations Primary Business Processes Automated Just-in-Time Warehousing Computer- Aided Flexible Manufacturing Online Point-of-Sale and Order Processing Targeted Marketing Customer Relationship Management FIGURE 2.8 The value chain of a firm. Note the examples of the variety of strategic information systems that can be applied to a firm's basic business processes for competitive advantage. easy, Value Chain Examples Figure 2.8 provides examples of how and where information technologies can be ap- plied to basic business processes using the value chain framework. For example, the figure illustrates that collaborative workflow intranets can increase the communica- tions and collaboration required to improve administrative coordination and support services dramatically. An employee benefits intranet can help the human resources management function provide employees with self-service access to their benefits information. Extranets enable a company and its global business partners to use the Web to design products and processes jointly. Finally, e-commerce Web portals can dramatically improve procurement of resources by providing online marketplaces for a firm's suppliers. The value chain model in Figure 2.8 also identifies examples of strategic applica- tions of information systems technology to primary business processes. These include automated just-in-time warehousing systems to support inbound logistic processes that involve inventory storage, computer-aided flexible manufacturing systems, as well as online point-of-sale and order processing systems to improve the outbound logis- tics processes that handle customer orders. Information systems can also support mar- keting and sales processes by developing an interactive targeted marketing capability on the Internet and the Web. Finally, a coordinated and integrated customer relation- ship management system can dramatically improve customer service. Thus, the value chain concept can help you identify where and how to apply the strategic capabilities of information technology. It shows how various types of infor- mation technologies might be applied to specific business processes to help a firm gain competitive advantages in the marketplace. Chapter 2 Competing with Information Technology 59 “Thinking like our customers and focusing on our company's markets are among the most important ways we can fulfill our responsibility to contribute to informed decision making,” says McKenna. Moving forward, it's more critical than ever for CIOs to study market trends and find ways to maximize business opportunities. Universal Orlando is one of many brands in the travel and entertainment industry competing for discretionary dollars spent by consumers on leisure time and vacations. Of course, the competition boils down to a market of one—the individual consumer. People often assume that because of the high volume of guests, the experience at Universal Orlando has to be geared for the masses. But digital technology now enables guests to customize their experi- ence. For example, the new Hollywood Rip Ride RockIt Roller Coaster will allow guests to customize their ride experience by choosing the music that plays around them while on the roller coaster. When the ride ends, guests will be able to edit video footage of that experience into a music video to keep, share with friends, or post online. Any CIO can take a few steps to get market savvy. Management gets weekly data about what happened in the park and what the spending trends are per guest. CIOs should get copied on any reports like that. They should study them and look for patterns. “Don't be afraid to ask questions about it; give yourself permission to be a smart (and inquisitive) businessperson. When I first joined the company and asked about market issues, people looked at me and thought, 'Why did she ask that? It doesn't have anything to do with technology.' Over time they realized that I needed to understand our data in order to do my job,” says McKenna. Knowledge of market data helps Universal Orlando drill down to under- stand what is really happening in business. For example, trends indicated that annual pass holders—Florida residents, primarily—spend less on food, mer- chandise, and other items than day-pass guests. It turned out that some pass holders do spend on par with day guests, particularly when they attend special events, Mardi Gras, and Halloween Horror Nights. “This analysis showed that we needed to segment those annual pass holders more deeply in order to better understand them and market to them. So we are building a new data warehouse and business intelligence tools that will calculate spending by hour and by pass type. The initiative started in IT, and we can find many similar opportunities if we look at market details and ask questions,” McKenna says. SOURCE: Michelle McKenna, “Customer Data Should Drive IT Decisions,” CIO Magazine, June 2, 2008. . . Let's look at another important concept that can help you identify opportunities for THE VALUE CHAIN AND strategic information systems. The value chain concept, developed by Michael Porter, STRATEGIC IS is illustrated in Figure 2.8. It views a firm as a series, chain, or network of basic activi- ties that add value to its products and services and thus add a margin of value to both LO 2-1 the firm and its customers. In the value chain conceptual framework, some business activities are primary processes; others are support processes. Primary processes are those business activities that are directly related to the manufacture of products or the delivery of services to the customer. In contrast, support processes are those business ac- tivities that help support the day-to-day operation of the business and that indirectly contribute to the products or services of the organization. This framework can high- light where competitive strategies can best be applied in a business. So managers and business professionals should try to develop a variety of strategic uses of the Internet and other technologies for those basic processes that add the most value to a compa- ny's products or services and thus to the overall business value of the company. 58 Module 1 Foundation Concepts FIGURE 2.7 How a customer-focused business builds customer value and loyalty using Internet technologies. Let customers place orders directly Let customers place orders through distribution partners Internet Internet Extranets Build a customer database segmented by preferences and profitability Transaction Database Customer Database Link employees and distribution partners to databases and customers Give all employees a complete view of each customer Let customers check order history and delivery status Make loyal customers feel special with Web site personalization Intranets Extranets Intranets Internet Build a Web community of customers, employees, and partners Figure 2.7 illustrates the interrelationships in a customer-focused business. Intranets, extranets, e-commerce Web sites, and Web-enabled internal business processes form the invisible IT platform that supports this e-business model. The platform enables the busi- ness to focus on targeting the kinds of customers it really wants and “owning" the cus- tomer's total business experience with the company. A successful business streamlines all business processes that affect its customers and develops CRM systems that provide its employees with a complete view of each customer, so they have the information they need to offer their customers top-quality personalized service. A customer-focused business helps its e-commerce customers help themselves while also helping them do their jobs. Finally, a successful business nurtures an online community of customers, em- ployees, and business partners that builds great customer loyalty as it fosters cooperation to provide an outstanding customer experience. Let's review a real-world example. Universal Orlando: IT Decisions Driven by Customer Data Michelle McKenna is the CIO of Universal Orlando Resort, but she is also a mother of two and the planner of family vacations. In fact, she thinks of herself first as a theme park customer, second as a senior leader at Universal, and finally as the company's CIO. “Recently we were brainstorming new events that would bring more Florida residents to our theme parks during off-peak tourist periods. Our in-house marketing group was pitching proposals, and I offered the idea of a Guitar Hero competition. Everyone loved it. But that idea didn't come from being a CIO—it came from being a mother of two,” she says. 58 Module 1 Foundation Concepts FIGURE 2.7 How a customer-focused business builds customer value and loyalty using Internet technologies. Let customers place orders directly Let customers place orders through distribution partners Internet Internet Extranets Build a customer database segmented by preferences and profitability Transaction Database Customer Database Link employees and distribution partners to databases and customers Give all employees a complete view of each customer Let customers check order history and delivery status Make loyal customers feel special with Web site personalization Intranets Extranets Intranets Internet Build a Web community of customers, employees, and partners Figure 2.7 illustrates the interrelationships in a customer-focused business. Intranets, extranets, e-commerce Web sites, and Web-enabled internal business processes form the invisible IT platform that supports this e-business model. The platform enables the busi- ness to focus on targeting the kinds of customers it really wants and “owning" the cus- tomer's total business experience with the company. A successful business streamlines all business processes that affect its customers and develops CRM systems that provide its employees with a complete view of each customer, so they have the information they need to offer their customers top-quality personalized service. A customer-focused business helps its e-commerce customers help themselves while also helping them do their jobs. Finally, a successful business nurtures an online community of customers, em- ployees, and business partners that builds great customer loyalty as it fosters cooperation to provide an outstanding customer experience. Let's review a real-world example. Universal Orlando: IT Decisions Driven by Customer Data Michelle McKenna is the CIO of Universal Orlando Resort, but she is also a mother of two and the planner of family vacations. In fact, she thinks of herself first as a theme park customer, second as a senior leader at Universal, and finally as the company's CIO. “Recently we were brainstorming new events that would bring more Florida residents to our theme parks during off-peak tourist periods. Our in-house marketing group was pitching proposals, and I offered the idea of a Guitar Hero competition. Everyone loved it. But that idea didn't come from being a CIO—it came from being a mother of two,” she says. Chapter 2 21 Competing with Information Technology 57 Innovation FIGURE 2.6 The move from innovation to competitive advantage quickly becomes competitive necessity when other firms learn how to respond strategically. Competitive Necessity Competitive Advantage Organizational Learning BUILDING A CUSTOMER-FOCUSED BUSINESS LO 2-2 The driving force behind world economic growth has changed from manufacturing volume to improving customer value. As a result, the key success factor for many firms is maximizing customer value. For many companies, the chief business value of becoming a customer-focused business lies in its ability to help them keep customers loyal, anticipate their future needs, respond to customer concerns, and provide top-quality customer service. This strategic focus on customer value recognizes that quality, rather than price, has be- come the primary determinant in a customer's perception of value. Companies that consistently offer the best value from the customer's perspective are those that keep track of their customers' individual preferences; keep up with market trends; supply products, services, and information anytime and anywhere; and provide customer ser- vices tailored to individual needs. Thus, Internet technologies have created a strategic opportunity for companies, large and small, to offer fast, responsive, high-quality products and services tailored to individual customer preferences. Internet technologies can make customers the focal point of customer relationship management (CRM) and other e-business applications. In combination, CRM systems and Internet, intranet, and extranet Web sites create new channels for interactive com- munications within a company, as well as communication with customers, suppliers, business partners, and others in the external environment. Such communications enable continual interaction with customers by most business functions and encourage cross- functional collaboration with customers in product development, marketing, delivery, service, and technical support. We will discuss CRM systems in Chapter 8. Typically, customers use the Internet to ask questions, lodge complaints, evaluate products, request support, and make and track their purchases. Using the Internet and corporate intranets, specialists in business functions throughout the enterprise can con- tribute to an effective response. This ability encourages the creation of cross-functional discussion groups and problem-solving teams dedicated to customer involvement, ser- vice, and support. Even the Internet and extranet links to suppliers and business partners can be used to enlist them in a way of doing business that ensures the prompt delivery of quality components and services to meet a company's commitments to its customers. This process is how a business demonstrates its focus on customer value. 56 Module 1 Foundation Concepts To prove the concept, a six-month pilot implementation launched at Boeing's St. Louis office in May 2007. The St. Louis system included 47 new Lexmark device categories, including printers, copy machines, and scanners. “We replaced the devices because we didn't want variability of age,” says Beauvais. The beauty of managed services is that Dell owns the devices and handles maintenance, a key goal for Beauvais. Boeing saw ROI immediately because Dell's service contract cost less than its existing agreements. In the end, Boeing saved about 30 percent of its imaging maintenance and supplies costs, and 27 percent of its overall imaging costs annually at locations with the new system. The initiative began rolling out companywide at the end of 2007. For Boeing, the benefits couldn't be clearer. Beauvais's staff can now focus more on other business needs, and the company's total imaging spending has been reduced to $110 million annually. Both will aid Boeing as it navigates a turbulent economy. SOURCE: Jarina D'Auria, “Boeing Saves Big by Cutting Imaging Costs,” CIO.com, March 25, 2009. Competitive Advantage and Competitive Necessity The constant struggle to achieve a measurable competitive advantage in an industry or marketplace occupies a significant portion of an organization's time and money. Creative and innovative marketing, research and development, and process reengineering, among many other activities, are used to gain that elusive and sometimes indescribable competitive advantage over rival firms. The term competitive advantage is often used when referring to a firm that is leading an industry in some identifiable way such as sales, revenues, or new products. In fact, the definition of the term suggests a single condition under which competitive advantage can exist: When a firm sustains profits that exceed the average for its industry, the firm is said to possess competitive advantage over its rivals. In other words, competitive advantage is all about profits. Of course, sales, revenues, cost management, and new products all contribute in some way to profits, but unless the contribution results in sustained profits above the average for the industry, no measurable competitive advantage has been achieved. The real problem with a competitive advantage, however, is that it normally doesn't last very long and is generally not sustainable over the long term. Figure 2.6 illustrates this cycle. Once a firm figures out how to gain an advantage over its competitors (normally through some form of innovation), the competitors figure out how it was done through a process referred to as organizational learning. To combat the competitive advantage, they adopt the same, or some similar, innovation. Once this occurs, everyone in the industry is doing what everyone else is doing; what was once a competitive advantage is now a competitive necessity. Instead of creating an advantage, the strategy or action becomes necessary to compete and do business in the industry. When this happens, someone has to figure out a new way to gain a competitive edge, and the cycle starts all over again. Every organization is looking for a way to gain competitive advantage, and many have successfully used strategic information systems to help them achieve it. The important point to remember is that no matter how it is achieved, competitive advantage doesn't last forever. Arie de Geus, head of strategic planning for Royal Dutch Shell, thinks there may be one way to sustain it: “The ability to learn faster than your competitors may be the only sustainable competitive advantage in the future.” This suggests an important role for information systems if any competitive advantage is to be achieved. Chapter 2 Competing with Information Technology 55 Other Strategic Uses of Information Technology . Develop interenterprise information systems whose convenience and efficiency create switching costs that lock in customers or suppliers. FIGURE 2.5 Additional ways that information technology can be used to implement competitive strategies. . Make major investments in advanced IT applications that build barriers to entry against industry competitors or outsiders. Include IT components in products and services to make substitution of competing products or services more difficult. . Leverage investment in IS people, hardware, software, databases, and networks from operational uses into strategic applications. marketing, sales, and service activities. More recent projects characterize a move to- ward more innovative uses of information technology. A major emphasis in strategic information systems has been to find ways to create switching costs in the relationships between a firm and its customers or suppliers. In other words, investments in information systems technology can make customers or suppliers dependent on the continued use of innovative, mutually beneficial interenter- prise information systems. They then become reluctant to pay the costs in time, money, effort, and inconvenience that it would take to switch to a company's competitors. By making investments in information technology to improve its operations or promote innovation, a firm could also raise barriers to entry that would discourage or delay other companies from entering a market. Typically, these barriers increase the amount of investment or the complexity of the technology required to compete in an industry or a market segment. Such actions tend to discourage firms already in the industry and deter external firms from entering the industry. Investing in information technology enables a firm to build strategic IT capabilities so that they can take advantage of opportunities when they arise. In many cases, this happens when a company invests in advanced computer-based information systems to improve the efficiency of its own business processes. Then, armed with this strategic technology platform, the firm can leverage investment in IT by developing new products and services that would not be possible without a strong IT capability. An important current example is the development of corporate intranets and extranets by many companies, which enables them to leverage their previous investments in Internet browsers, PCs, servers, and client/server networks. Figure 2.5 summarizes the additional strategic uses of IT we have just discussed. Boeing: Saving Big by Cutting Imaging Costs Hitting “Ctrl+P” can cost your business more than you think. It certainly did at aerospace giant Boeing. Imaging services—which includes production printing, office printing, faxing, scanning, and related supplies—used to cost the com- pany nearly $150 million annually. The problem, says Earl Beauvais, Boeing's director of print, plot, and scan services, was that imaging wasn't centrally controlled, and the company used several vendors. Boeing also owned, oper- ated, and maintained about 32,000 imaging devices. The lack of an enterprise- wide solution meant, among other things, that each department was responsible for purchasing its own toner, paper, and other supplies. To increase efficiency and reduce cost, Beauvais and his team sought a man- aged services solution to handle everything from print cartridges to printer upkeep across Boeing's 195 domestic sites and 168 international sites. Beauvais spent 18 months researching and interviewing vendors, who had to show how they would manage the company's imaging technology needs while providing the greatest efficiency at the best price. He and his team chose a partnership comprising Dell (for maintenance and asset management) and Lexmark (for devices). They picked them in part because Dell had infrastructure in place at Boeing. 54 Module 1 Foundation Concepts . FIGURE 2.3 A summary of how information technology can be used to imple- ment the five basic competitive strategies. Many companies are using Internet technologies as the foundation for such strategies. . . . . Basic Strategies in the Business Use of Information Technology Lower Costs Use IT to substantially reduce the cost of business processes. Use IT to lower the costs of customers or suppliers. Differentiate Develop new IT features to differentiate products and services. Use IT features to reduce the differentiation advantages of competitors. Use IT features to focus products and services at selected market niches. Innovate Create new products and services that include IT components. Develop unique new markets or market niches with the help of IT. Make radical changes to business processes with IT that dramatically cut costs; improve quality, efficiency, or customer service; or shorten time to market. Promote Growth Use IT to manage regional and global business expansion. Use IT to diversify and integrate into other products and services. Develop Alliances Use IT to create virtual organizations of business partners. Develop interenterprise information systems linked by the Internet and extranets that support strategic business relationships with customers, suppliers, subcontractors, and others. . . . . growth, and alliance. Let's look at several key strategies that can also be implemented with information technology. They include locking in customers or suppliers, building switching costs, raising barriers to entry, and leveraging investment in information technology Investments in information technology can allow a business to lock in customers and suppliers (and therefore lock out competitors) by building valuable new relation- ships with them. These business relationships can become so valuable to customers or suppliers that they deter them from abandoning a company for its competitors or intimidate them into accepting less profitable business arrangements. Early attempts to use information systems technology in these relationships focused on significantly improving the quality of service to customers and suppliers in a firm's distribution, FIGURE 2.4 Examples of how, over time, companies have used informa- tion technology to implement five competitive strategies for strategic advantage. Strategy Company Business Benefit Cost Leadership Dell Computer Priceline.com eBay.com Strategic Use of Information Technology Online build to order Online seller bidding Online auctions Lowest-cost producer Buyer-set pricing Auction-set prices Differentiation AVNET Marshall Moen Inc. Consolidated Freightways Increase in market share Increase in market share Increase in market share Customer/supplier of e-commerce Online customer design Customer online shipment tracking Online discount stock trading Online package tracking and flight management Online full-service customer systems Innovation Charles Schwab & Co. Federal Express Amazon.com Market leadership Market leadership Market leadership Growth Citicorp Walmart Toys 'R' Us Inc. Alliance Walmart/Procter & Gamble Cisco Systems Staples Inc. and Partners Global intranet Merchandise ordering by global satellite network POS inventory tracking Automatic inventory replenishment by supplier Virtual manufacturing alliances Online one-stop shopping with partners Increase in global market Market leadership Market leadership Reduced inventory cost/ increased sales Agile market leadership Increase in market share Chapter 2 Competing with Information Technology 53 for way a busi- . Figure 2.2 also illustrates that businesses can counter the threats of competitive forces that they face by implementing one or more of the five basic competitive strategies. Cost Leadership Strategy. Becoming a low-cost producer of products and ser- vices in the industry or finding ways to help suppliers or customers reduce their costs or increase the costs of competitors. Differentiation Strategy. Developing ways to differentiate a firm's products and services from those of its competitors or reduce the differentiation advantages of competitors. This strategy may allow a firm to focus its products or services to give it an advantage in particular segments or niches of a market. Innovation Strategy. Finding new ways of doing business. This strategy may involve developing unique products and services or entering unique markets or market niches. It may also involve making radical changes to the business processes pro- ducing or distributing products and services that are so different from the ness has been conducted that they alter the fundamental structure of an industry. Growth Strategies. Significantly expanding a company's capacity to produce goods and services, expanding into global markets, diversifying into new products and services, or integrating into related products and services. Alliance Strategies. Establishing new business linkages and alliances with cus- tomers, suppliers, competitors, consultants, and other companies. These linkages may include mergers, acquisitions, joint ventures, formation of virtual companies, or other marketing, manufacturing, or distribution agreements between a busi- ness and its trading partners. One additional point regarding these strategies is that they are not mutually ex- clusive. An organization may make use of one, some, or all of the strategies in varying degrees to manage the forces of competition. Therefore, a given activity could fall into one or more of the categories of competitive strategy. For example, implementing a system that allows customers to track their orders or shipments online could be con- sidered a form of differentiation if the other competitors in the marketplace do not offer this service. If they do offer the service, however, online order tracking would not serve to differentiate one organization from another. If an organization offers its online package tracking system in a manner that al- lows its customers to access shipment information via not only a computer but a mo- bile phone as well, then such an action could fall into both the differentiation and innovation strategy categories. Think of it this way: Not everything innovative will serve to differentiate one organization from another. Likewise, not everything that serves to differentiate organizations is necessarily viewed as innovative. These types of observations are true for any combination of the competitive strategies, thus making them complementary to each other rather than mutually exclusive. How can business managers use investments in information technology to support a firm's competitive strategies? Figure 2.3 answers this question with a summary of the many ways that information technology can help a business implement the five basic competitive strategies. Figure 2.4 provides examples of how specific companies have used strategic information systems to implement each of these five basic strategies for competitive advantage. Note the major use of Internet technologies for e-business and e-commerce applications. In the rest of this chapter, we discuss and provide examples of many strategic uses of information technology. STRATEGIC USES OF INFORMATION TECHNOLOGY LO 2-3 Other Strategic Initiatives While Porter's Five Forces (as shown in Figure 2.2) are considered the basic foundation for understanding business strategy, there are many strategic initiatives available to a firm in addition to the five basic strategies of cost leadership, differentiation, innovation, 52 Module 1 Foundation Concepts FIGURE 2.2 Businesses can develop competitive strategies to counter the actions of the competitive forces they confront in the marketplace. Cost Leadership Differentiation Innovation Competitive Strategies Growth Alliance Other Strategies Threat of Rivalry of New Competitors Entrants Bargaining Bargaining Threat of Power of Power of Substitutes Customers Suppliers Competitive Forces wants to survive and succeed must effectively develop and implement strategies to counter (1) the rivalry of competitors within its industry, (2) the threat of new entrants into an industry and its markets, (3) the threat posed by substitute products that might capture market share, (4) the bargaining power of customers, and (5) the bargaining power of suppliers. Competition is a positive characteristic in business, and competitors share a natural, and normally healthy, rivalry. This rivalry encourages and sometimes requires a constant effort to gain competitive advantage in the marketplace. This ever-present competitive force requires a commitment of significant resources on the part of a firm. Guarding against the threat of new entrants also requires the expenditure of signifi- cant organizational resources. Not only do firms need to compete with other firms in the marketplace, but they must also work to create significant barriers to the entry of new competition. This competitive force has always been difficult to manage, but it is even more so today. The Internet has created many ways to enter the marketplace quickly and with relatively low cost. In the Internet world, a firm's biggest potential competitor may be one that is not yet in the marketplace but could emerge almost overnight. The threat of substitutes is another competitive force that confronts a business. The effect of this force is apparent almost daily in a wide variety of industries, often at its strongest during periods of rising costs or inflation. When airline prices get too high, people substitute car travel for their vacations. When the cost of steak high, people eat more hamburger and fish. Most products or services have some sort of substitute available to the consumer. Finally, a business must guard against the often opposing forces of customer and supplier bargaining powers. If customers' bargaining power gets too strong, they can drive prices to unmanageably low levels or just refuse to buy the product or service. If a key supplier's bargaining power gets too strong, it can force the price of goods and services to unmanageably high levels or just starve a business by controlling the flow of parts or raw materials essential to the manufacture of a product. gets too
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