Information systems and competitive strategy by emanuel baisire

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The paper examines the impact of information systems technology in achieving competitive edge. The paper reviews several firms’ attempt to out-compete rivals through the use of information systems and streamlining production cost by adopting new business processes that are influenced by information systems. Many organizations have embraced the use of information systems to gain market share, increase customer loyalty and introduce new products to consumers The existence of transaction processing systems and decision support systems have eased the process in which important business decision are reached. The paper also links the impact and value of information systems in determining an ideal competitive strategy for a firm within an industry. It also examines how firms apply information systems technology to execute business processes.

Transcript of Information systems and competitive strategy by emanuel baisire

  • Special Topics in Information Systems: Readings in Human-Centered Computing By Emanuel Baisire
  • 1 Information Systems and Competitive Strategy Abstract The paper examines the impact of information systems technology in achieving competitive edge. The paper reviews several firms attempt to out-compete rivals through the use of information systems and streamlining production cost by adopting new business processes that are influenced by information systems. Many organizations have embraced the use of information systems to gain market share, increase customer loyalty and introduce new products to consumers The existence of transaction processing systems and decision support systems have eased the process in which important business decision are reached. The paper also links the impact and value of information systems in determining an ideal competitive strategy for a firm within an industry. It also examines how firms apply information systems technology to execute business processes. 1
  • 2 Information Systems and Competitive Strategy Introduction The focus of this paper is to understand the influence played by information systems in shaping new industry structures and increasing the rate of first-mover advantage .Organizations have realized that the only way to compete more effectively is to make significant investments in information technology infrastructures. It is also important to note that firms investing in advanced information technology but avoid other complementary assets tend to fail in their attempt to become profitable or improving their business process. Information systems are catalyst for rolling out new strategies and helping towards cost reduction initiatives. Information systems have a tremendous impact in increasing organizational efficiency and effectiveness1. The paper also explores the extent to which information systems can be applied to Porters (1998) five competitive forces of threat of new entrants, rivalry among existing firms, the threat of substitutes, bargaining power of buyers and suppliers. Information Systems Success Information system is a set of interrelated components that gather and distribute information to support tasks and other decision-making processes2. Competitive strategy is a firms ability to position itself in a more advantageous sphere than other firms within the industry3. The logic of 1 2 Bakos, Y.J. and M.E. Treacy, Information Technology and Corporate Strategy: A Research Perspective, MIS Quarterly, vol.10, no.2, pp. 107-119, 1986. Laudon, K.C. and Laudon, P.L.(2007). Managing Information Systems: Managing the Digital Firm, Upper Saddle River Pearson Prentice Hall.. 3 Porter, M.E (1998). Competitive Advantage: Creating and Sustaining Superior Performance: With A New Introduction. New York: Free Press. 2
  • 3 adopting a competitive strategy is to map out a profitable and sustainable path that is superior in relation to industry competition. Information systems process data into information resources that are used by senior executives, middle managers, line workers and external partner organizations. Information systems can be designed for operational purposes within an organization and in some instances it can be an inter-organizational information system overlapping organizational boundaries4. Although information needs differ within organizations, each employee is tasked with achieving certain goals and objectives set by the organization. The value added chain analysis and Porters framework for competitive analysis are the two recognized approaches on how firms use information systems to gain competitive advantage5. Information system is a core component in value chain process because every step during the value chain process disseminates and uses information (Porter, 1998). Information systems can create competitive opportunities in areas of operational efficiency, inter-organizational synergies, product innovation, customer and suppliers loyalty6. Firms are advised not to consider investments in information systems for costs reduction purposes only but should also focus on systems that add value to the product or service7. Firms that are well positioned and having the needed resources to add value to their product but lacking a comprehensive information system will lag behind their competitors. In order to gain a competitive edge, organizations may launch an information system aimed at improving the way products and services are delivered to its customer or by simply streamlining 4 5 6 7 Bakos, Y.J., A Strategic Analysis of Electronic Market Places, MIS Quarterly, vol.15, no.3, pp. 295-310, 1991. Ibid. Ibid. Blake, I., G.P. Learmonth, The Information System as a Competitive Weapon, Communications of the ACM, vol.27, no.12, Pp.1193-1201, 1984. 3
  • 4 a distribution channel to meet current demand8. In some cases, the need may be to directly benefit a companys internal operations. For instance a company may launch an automation system to process sales order and invoices for the sales and marketing team. The customer centered information system may be an order-entry system that enables potential clients to punch in their orders without interacting with any company employee. This initiative may save a company from incurring extra costs related to wages and other office supplies. Information systems ease the way in which consumers acquire products and services. For instance major chain hotels have put in place check-ins and check-out electronic kiosks linked to airline sites and other attractions. Customers that value convenience are more likely stay in hotels that provide such services thus creating brand loyalty. It should be noted that information systems should not only store data and information but rather the same information has to be manipulated in order to create value to the organization. For instance, an inventory information system that only stores and retrieve information may not be as effective as another system that uses the stored information to solve different business problems. A valued inventory information system should have the capability of automatically triggering supply orders from suppliers and analyze data to initiate promotional sales and product pricing. Firms that adopt new technological innovations and information systems much earlier than their counterparts tend to gain a first mover advantage within the industry. Information systems can affect positioning to new market entrant due to extensive and expensive barriers. Organizations choice for a specific information system can be influenced by individuals but the entire organization needs to rally behind a chosen strategy if it is to be effective. 8 Notowidigdo, M.H., Information Systems: Weapons to Gain the Competitive Edge, Finance, Executive, vol.52, no.2 pp.20-25, 1984. 4
  • 5 In case of Wal-Mart, it positioned itself as a retail industry leader by making significant investments in inventory replenishment systems. It uses the system to monitor store sales and share instant information with suppliers globally to ensure timely delivery of demanded products. Early adoption of this technology enabled Wal-Mart to surpass all its major competitors and became an industry leader by integrating information systems as a core element of its business strategy (Porter, 1998). A decision to purchase information technologies such as electronic data interchange (EDI) and point-of-sale scanners can leverage a firms competitiveness through costs reduction and low prices to customers (Boulton et al, 1992). Sears Corp. launched an information system that automatically generates postcard alerts to remind customers to renew their service contracts. By using the system, Sears has been able to attract a group of strong and loyal customers thus boosting service revenues and customer intimacy.9 Competitive forces and information systems Information systems are important for firms that need to remain competitive in such a dynamic business environment. Information systems play a significant role in reshaping market shares, strengthening relationships between businesses and customers or businesses and suppliers10. According to Porter (1998), firms develop their business strategies in order to obtain competitive advantage over their competitors. It is argued that firms will only succeed if they are able to choose and develop competitive forces that are in line with the overall business strategy. The five competitive force models advocated by Porter include new market entrants, substitute product and services, intensity of rivalry, bargaining power of buyers and suppliers. 9 Ibid. Avison & Fitzgerald 1995, Information Systems Development: Methodologies, Techniques and Tools 2nd ed. McGraw Hill, Maidenhead. 10 5
  • 6 Figure 1: The Five Competitive Forces Driving Industry Profitability Adapted from M.E. Porter, Competitive Advantage, Free Press, 1998 Information systems and entry barriers A firms investment in information systems can act as an entry barrier to the industry. For instance, a decision by FedEx and UPS to invest in logistical integrated system in order to ship and track customer packages worldwide enables them to limit new entrants in the market and at 6
  • 7 the same time differentiating themselves from other carriers. Similarly ownership of computer reservation systems by many service industries that requires large capital expenditure limits would be competitors fr