Download Information Systems and Competitive Advantage

2nd Module: The Strategic Role of Information
Systems:
Structure:
1. Strategic Information Systems
2. Information Systems and Competitive
Advantage
3. Inter-organisational Information Systems
4. Organisational Strategy and Information
Systems
What does strategic role mean in this context?
It means that the organisation has become
dependent on their information systems and
would not be able to exist anymore if it was
suddenly deprived of them.
For example: online businesses such as Amazon,
Easyjet, or the Nasdaq stock exchange, but also
more traditional businesses such as Foreign
Exchange currency dealers etc.
In all these examples, IT is a necessary
condition for successful business.
Strategic dependence develops based on:
- How well a business competes in a market.
- Its market sector with its unique characteristics.
Online trading, for example, would run any
competitor without Information Systems into
serious trouble (and quickly out of business).
More traditional businesses, on the other hand,
such as taylors who have an exclusive offer
from Buckingham Palace to make handcrafted clothes for the Queen might not face
the risk of running out of business, even if
they do not rely on Information Systems.
So it very much depends on the market sector
and its characteristics whether IT is
important or not.
In most market sectors, Information Systems are
nowadays very important, possibly even of
strategic importance.
Information Systems and
Competitive Advantage
Since the mid 1980s it was recognised that
Information Systems could bring a competitive
advantage to organisations that rely on them
(McFarlan, 1984; Porter, 1980; Porter & Millar,
1985).
However, strategic Information Systems were
not always successful and costs sometimes
outweighed gains.
The reason for this was that competitors often
copied the Information Systems achievements
of their rivals and many competitors introduced
similar information systems at the same time,
which did not bring a significant gain to anyone.
So in order to gain an advantage, the
organisation needed the idea earlier than their
rivals, and needed to ensure that their rivals
could not copy this idea (which can be done by
patenting new technologies).
However, not everything can be patented, e.g.
new ideas cannot be patented.
An example of something that could not be
patented was the Direct Line Motor Insurance
that applied IT to sell motor insurance directly,
without a broker taking part. Ideas like this
cannot be patented, and there were soon many
competitors that had the same ideas, so Direct
Line finally moved out of business.
Strategic Advantage: Usually, only a few
companies survive on the market, and they
compete for customers, e.g. there are only a
couple of private banks on the market (Barclays,
NatWest, Lloyds, HSBC, etc.).
Strategic vs. Sustainable
Advantage
Strategic Advantage: Usually, only a few
companies survive on the market, and they
compete for customers, e.g. there are only a
couple of private banks on the market (Barclays,
NatWest, Lloyds, HSBC, etc.).
For these few competitors, Information Systems
are often an essential part of the company. All of
these companies might end up benefiting from
Information Systems, because IT helps them to
save cost in many ways.
Since all of those companies have similar
Information Systems, however, the systems are
just necessary for them to survive on the
market, but the systems themselves do not bring
any competitive advantage.
For example, all of these banks offer Cash
Machines, Telephone Banking, Internet Banking,
etc.
Sustainable Advantage: If a company is
unique in a particular way, Information Systems
can help the company profit from its uniqueness.
In short, a sustainable advantage can be
described as: Profiting from one’s uniqueness
and getting more advantages through having
Information Systems that support what the
company does best.
The advantage itself does not come from the
Information Systems per se, just through
enhancing and making more effective what the
company is already good at.
An example is the investment bank Merrill
Lynch, which had a unique product palette for
wealthy customers. This product palette could
not be replicated by other investment banks.
However, it should not be forgotten that many
information system implementations actually
failed.
Because failure is reported less often than
success, it is hard to estimate how many
implementations ended up being useless or
unsuccessful.
Failures are sometimes reported in newspapers,
when famous organisations sue companies that
provided the technology.
There are different reasons for failures, such as:
1. The Implementation Costs became too high.
2. The Information Systems did not result in a
competitive advantage.
3. The Information Systems caused unforeseen
and adverse consequences.
In any case, it should be considered that
Information Systems are rarely the driving
force towards competitive advantage. They
might only provide conditions necessary for
success.
As a result, the development of new information
systems for particular purposes is quite risky.
It should be kept in mind that many success
stories resulted from further development of
already existing Information Systems, such
as online airline ticket reservation websites
resulted from other online sales websites.
In general, there is vivid disagreement among
many business scientists as to whether
Information Systems bring a competitive
advantage or not.
Inter-organisational
Information Systems
Inter-organisational Information Systems are
“systems that create electronic links between
customers and suppliers, between organisations
in different industries, and even between
competitors.” (Duncan, 1997).
This might foster completely new organisational
structures, with co-operation between several
smaller and specialised companies instead of
large businesses being active in several areas.
An example of an inter-organisational system is
the Economost system by the McKesson
Corporation. This system distributes medication
to individual drugstores, who tended to be
pushed out of business by large drugstore
chains.
The Economost system helped these
independent drugstores in several ways:
It automated the ordering process, which
reduced customer costs.
It helped to set the prices and to offer a better
targeted mix of products, etc.
This again helped the independent drugstores to
afford services that usually only large chains
could afford.
Not a single store would have been able to
afford the IT technology, but the collective effort
of many stores ensured that the Economost
system could be sold at a price that each store
could afford.
This system also enabled the stores to have
marketing services that they would otherwise fail
to achieve.
As the Economost system shows, partnerships
formed through inter-organisational Information
Systems are a contrast to the traditional dog-eatdog view that was prominent until recently.
Another example would be the alliance between
several airlines in order to ensure survival of
each individual airline. In order to enable cooperation between these airlines, interorganisational information systems provide very
useful help, particularly for small airlines that
would otherwise go out of business.
Organisational Strategy and
Information Systems
When Information Systems play such an
important role in an organisation, it is
essential that assessment of the strategic
impact as well as planning and organisation
are taken very seriously.
Bleeke and Ernst (1993) for example consider
the following strategy for businesses in the
context of the global marketplace:
“Businesses need to collaborate to
compete”
Information systems play a large part in
allowing businesses to communicate with
their collaborators.
This leads to a structural change, away from
the core business that dominated business
practice in the 1990s to alliance-based
businesses with networks through interorganisational information systems.
“Reengineering” is another term that has now
been used to describe the practice of
forming alliances, though the idea of
reengineering is not really new.
What all these new approaches of forming
alliances have in common is that they
depend on Information Systems to build
these alliances.
Examples are companies offering products, but
where it is required that suppliers are able
to access databases within the company.
References:
Bleeke, J. & Ernst, D. (1993). Collaborating to
Compete. New York: Wiley.
Duncan, W.M. (1997). Information Systems
Management. London: University of London
Press.
McFarlan, F.W. (1984). Information Technology
Changes the way you compete. Harvard
Business Review, 62 (3), 98-103.
Porter, M.E. (1998). Competitive Strategy. New
York: Free Press.
Porter, M.E. & Millar, V.E. (1985). How
Information gives you competitive
advantage. Harvard Business Review, 4,
149-160.
References for students who are interested in
further reading can also be found on page 9
of the study guide.