Information Technology Cannot Really Give a Company a Strategic Advantage
The information technology (IT) revolution has had an enormous influence on how organizations/companies are managed. It can credibly be claimed that no other source of change has had more impact on the paradigms and practices that underline the management function.Though other developments such as the emergence of the global economy and the increasingly knowledge-based nature of modern organisations have significantly affected how organisations are managed, IT developments actually are an integral part of these other phenomena that require innovations in the practice of management. It should be noted that the success of any business is first and foremost hinged on its management. It is the view of this author that IT on its own cannot bring superior profits to a company.
This can only happen when it is used in combination with good management.The earlier use of IT, compared to competing companies, can actually give the company a competitive advantage that can turn out to be a strategic advantage if it can be sustained and maintained. The maintenance and sustenance need a lot of resourcefulness on behalf of management and all concerned. The resourcefulness is required to deal with quite a number of competitive forces abound in the business environment. A triumph against these forces will give a company competitive advantage that can turn into strategic advantage.
In business a strategic advantage should be guarded religiously as it is a necessity. Abudi (2010) sums up the need of sustenance and maintenance when she said ‘Long-term competitive advantages require continuous business process improvement’. This paper will look at definition of terms found in the question, Porter’s competitive force model to have an insight on some of the competitive forces found in the business environment and how to counter those forces in order to have a competitive or strategic advantage. DEFINITIONSThe terms to be defined are Information Technology, Competitive Advantage, Strategic advantage and strategic necessity. There are many definitions given to these terms, however the definitions given below will be the working definitions for this paper.
Information Technology: According to Information Technology Association of America (ITAA) “Information Technology is the study, design, development, implementation, support or management of computer-based information systems, particularly software applications and computer hardware. Competitive Advantage: According to Porter (1985), a competitive advantage exists when the firm is able to deliver the same benefits as competitors but at a lower cost (cost advantage), or deliver benefits that exceed those of competing products (differentiation advantage). Thus, a competitive advantage enables the firm to create superior value for its customers and superior profits for itself. Strategic Advantage: Falcon (2006) states that strategic advantage is broader than competitive advantage. It comprises internal operations and business relationships, as well as how the business compares to its competitors.
It is the ability of the business to; operate efficiently and effectively, innovate products and services, win and retain customers, partner with vendors and suppliers, hire and retain employees and adapt to ever changing business climates and demands. Strategic Necessity: Mcafee (2006) believed that IT could be an irreplaceable contributor to competitive advantage, but did not believe that this advantage comes from slapping the ‘strategic’ label on a particular system or application, even one that’s valued by customers, revenue enhancing, and necessary for the rollout of new products or services.A system with all these attributes can be a strategic necessity, which is very different from a strategic resource. Clemons and Row (1991) points out that bank ATM machines allowed retail banks to offer a new service (24 hour access to cash), are beloved by customers, and bring in additional revenue. They quickly became strategic necessities; banks had to get ATM networks to stay in business. So they acquired their own machines and installed in their own premises or formed alliances with other banks to provide the service.
Once they became widespread ATM networks could no longer be called strategic resources, which need to be, not only valuable, but also rare, inimitable, and non-substitutable. A good example is the ZIMSWITCH in Zimbabwe. Given the above definitions the author is of the opinion that IT on its own cannot bring about tangible advantages. It is, therefore, merely a tool that can be used, in combination with good management and management information systems, to achieve a competitive advantage. Strategic advantage is competitive advantage broadened, deepened, maintained and sustained in the long term and is difficult to achieve.The author also agrees with other lines of arguments led by Garr (2003) who believe that IT cannot bring about a strategic advantage; to only as far as if it is used on its own without management information systems.
PORTER’S COMPETITIVE FORCES In order to analyse how IT impacts on a company, that is whether it gives a company a competitive advantage, strategic advantage or it merely becomes a strategic necessity, it is necessary to see how IT has fared in fighting against competitive forces found in the business environment.Examples of companies that were heavily influenced by IT will be given where possible. One of the most well-known frameworks for analyzing competitiveness is Porter’s competitive forces model. According to Porter a company must confront at least five competitive forces in the business environment. The five forces are generalized as follows: 1. The bargaining power of customers.
2. The bargaining power of suppliers. 3. The threat of new entrants to firm’s market. 4.
The threat of substitute products and services. 5. The rivalry for competitors within the firm’s industry.Porter did not only come up with these competitive forces but also came up with competitive strategies to counter the competitive forces. It is how these competitive strategies have been used in combination with IT which will show whether a strategic advantage was achieved or it merely led to a strategic necessity. PORTER’S COMPETITIVE STRATEGIES Porter came up with five (5) competitive strategies to counter the competitive forces as follows: Cost leadership strategy: Producing products/services at the lowest cost in the industry.
There are examples of companies that became cost leaders by incorporating IT into their management information systems. Dell Computer Online build to order system resulted in Dell becoming the lowest cost producer of computers and thus dealing a heavy blow to rivalry competitors. Differentiation strategy: This is a strategy whereby a company distinguishes its products and services from those of its competitors so that they become unique. Customers must see a consistent difference between your product/service and those of your competitor’s.This difference needs to be obvious to your customers and it must influence their purchasing decision.
Example: Coke vs. Pepsi. Coke sales are higher than Pepsi. Pepsi failed to bit the uniqueness of coke. Innovation strategy: Finding new ways of doing business is also another strategy that can lead to competitive advantage. Federal Express came up with an online packaging system that resulted in it becoming a market leader in flight management.
This heavily reduces the bargaining power of customers due to assured safety of goods as well as dealing a heavy blow to other competitors and new entrances.According to the Business Digest (2010), Econet Wireless introduced 3G service in Zimbabwe ahead of other service providers. This innovation made it not only a market leader but also gave it a competitive advantage. Growth: This can be achieved by expanding production capacity in order to produce more products. It can also be done by expanding into global markets through the use of the internet.
A good example is Toyota which enables customers to buy cars on the internet. This has resulted in it gaining market leadership in the sale of cars in the world.Alliances: Working with business partners. A good example of an alliance is that of Drugstore.
com (online pharmacy) and General Nutrition Centers (GNC) (distributor of vitamins and health foods) formed a partnership that gave Drugstore. com the exclusive rights to sell GNC-branded products. This reduced both the bargaining power of the supplier and customer by locking of both customer and supplier. The above competitive strategies gave the various companies competitive advantages in different ways but not necessarily strategic advantage in the author’s view.This is so because what they achieved is imitable and can be substituted in the long run.
In order for the companies to sustain the advantages, they have to keep own innovating and include in their systems more complex technology or the one that cannot be copied. Eisenhardt and Martin (2000) argues that for a resource or an advantage to become strategic it needs to be, not only valuable, but also rare, inimitable, and non-substitutable – the so-called ‘VRIN’ attributes.A good example of a company that has managed to turn IT into a strategic resource/advantage is Google. Its combination of smart algorithms, vast storage capacity, and processing muscle gives it the ability to return high-quality search results, even in the presence of many attempts to game the system.
This infrastructure is clearly a strategic resource/advantage for the company. CONCLUSION The author is of the view that IT can actually give a company a competitive advantage provided that it is combined with good management information systems.IT activities that bring about competitive advantages must be constantly improved, nurtured, and worked at to maintain that edge over competitors. Also a company has to come up with a good management information system first, so that the company can make super profits before competitors can copy the system. It is also the author’s view that most of the competitive advantages brought by IT can be copied sooner rather than later. As a result companies will keep on trying to come up with more complicated systems, which can still be copied, resulting in stakes being raised higher and higher.
Furthermore, the fact that IT can be copied means that it can be a mammoth task to use it as a strategic advantage or to bring about strategic advantage. However IT can become a strategic necessity as more and more companies will turn to IT in trying to outdo each other. IT is no longer a luxury in business but a necessity. The author is also of the opinion that even those few companies that have managed to use IT as a strategic resource, will one day loose that advantage when other companies succeed to imitate and substitute the system.Good management and the right human resource, in general, can be the only truly strategic advantages/resources of a company.