CASE STUDY 2.1
5. rivalry among existing competitors
Porter’s work can also be used to identify a number of ways in which BIS can be used to achieve competitive advantage. These include:
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improving operational efficiency;
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raising barriers to entry;
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locking in customers and suppliers;
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promoting business innovation;
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increasing switching costs;
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leverage.
Figure 2.10 summarises the main ways in which computer-based information systems can be used to achieve competitive advantage.
Improving operational efficiency
One of the most common ways of using computer-based information systems to achieve competitive advantage is by using them to improve operational efficiency. As an example, consider a typical manufacturing company wishing to adopt a cost leadership strategy. In a primary activity, such as production, an inventory control system might be used to manage stock levels, reducing storage and transportation costs. In addition, support activities, such as management and administration, might achieve higher levels of productivity through the introduction of office automation systems. The organisation might also realise additional benefits from this kind of approach, such as improved customer service.
Barriers to entry
In many industries, organisations have improved operational efficiency by investing heavily in BIS. Often, the systems employed are extremely complex and require ongoing
Using information systems for strategic advantage
maintenance and development. This means that newcomers to the industry must be prepared to make a large initial expenditure so that they can acquire the computer-based information systems they need to be able to compete effectively. The level of expenditure needed may be so high that an entry barrier is created that deters or prevents the new competitor from entering the industry. Investing heavily in computer-based information systems may also deter existing competitors, since they too must invest in their information systems in order to maintain or improve their position in the industry. New technologies can decrease barriers to entry. For example, electronic banking removed the requirement for a branch network, leading to the establishment of Internet-only banks, such as Smile.
However, entry barriers were so high that most required the backing of a major high-street bank or building society.
Locking in customers and suppliers
Linking an organisation’s computer-based information systems to those of its customers and suppliers can help to strengthen business relationships. As an example, computer-based information systems can be used to provide higher levels of customer service, thereby encouraging clients to remain loyal to the company.
Close integration with a supplier’s information systems can result in a number of business benefits, which include:
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the availability of raw materials or parts is more certain;
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cost savings can be realised through reduced administration overheads;
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suppliers are less likely to abandon the business relationship;
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the organisation can negotiate favourable terms and prices;
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competitors are excluded from the business relationship.
However, it should be noted that achieving high levels of integration can also have some significant disadvantages. Perhaps the single largest disadvantage is that the organisation may come to rely upon a relatively small number of suppliers. This reliance might lead to some suppliers’ taking advantage of the relationship, for example by raising prices. The organisation may also find it difficult to maintain normal operations if the supplier goes out of business or experiences other problems.
Figure 2.10 Applying computer-based information systems for competitive advantage
Leverage
Promote business innovation Organisation
Improve operational efficiency
Increase switching costs Raise entrybarriers
Lock in customers and suppliers
Promoting business innovation
Investing in computer-based information systems often helps to stimulate business innovation. Introducing a new process control system, for example, might ultimately result in the development of new product features or new product lines.
Organisations that have invested in building effective computer-based information systems are well placed to support business innovation. Such organisations are likely to have established a resource base that can be drawn upon to develop new ideas.
On the other hand, an organisation that has failed to invest adequately in its information systems may lack essential resources, such as hardware, software and trained personnel, and be unable to explore new methods.
Increasing switching costs
In general, an organisation that has invested time, money and effort in developing a computer-based information system will be reluctant to bear the switching costs of moving to a new system. In addition to the cost of new hardware and software, a range of other costs can be incurred. These might include costs connected with:
■ converting data for use with the new system;
■ training staff;
■ interruptions to the company’s operations;
■ lost opportunities to gain new business.
When an organisation links its information systems to those of its suppliers or customers, it will often ensure that switching costs are as high as possible. In this way, the supplier or customer is discouraged from switching to a competitor’s system and competitors are excluded from the business relationship.
Leverage
Access to a resource base of this kind can provide a number of other benefits to an organisation as well as innovation. First, the organisation is equipped so that it can take advantage of any opportunities that arise in the business environment. Second, the organisation can begin to develop new products and services by maximising its use of existing resources. An example of leverage is when a travel agent creates a mailing list from its customer database so that it can offer customers new products or services, such as travel insurance or car rental.
Finally, the organisation may use its resources to gain competitive advantage through
information leadership. Information leadership involves enhancing a product or service with an organisation’s specialised information or expertise.
In some cases, organisations achieve information leadership by selling information or expertise in the form of a separate product. A good example might be selling a mailing list created from an organisation’s customer database.
Leverage
a way of increasing returns without increasing investment, usually by maximising the use of existing resources.
Information leadership
enhancing a product or service using an organisation’s specialised information or expertise.
As products become commoditised, it is often said that how companies use information is the key to competing successfully in the marketplace. Dave Buch, director at Capital One, has said: ‘Back in 1987 we figured that our business is nothing to do about credit cards, it’s about information. Capital One is now a $14 billion company with 12 million customers.’
Capital One develops information leadership Mini case study
A global survey of more than 2,000 company IT leaders published this week by Gartner, the IT market research firm, shows that, on average, enterprises are realising only 43 per cent of technology’s business potential.
I asked Mark McDonald, group vice-president and Gartner Fellow, what chief information officers can do to address this issue and make better use of IT in 2013.
Q. The CIO Agenda 2013 survey reveals that chief information officers believe that their enterprises have realised less than half of technology’s potential. How has this come about?
There are two reasons behind this: the past and the future.
For the past 10 years, IT has endured a decade of CIO IT budget devaluation because tending to current concerns and costs have limited IT’s strategic relevance, resources and skills. This led many CIOs to believe that surviving meant keeping IT focused on muddling through with current operations and responsibilities.
That approach in turn reduces the good business reasons for investing in technology.
This approach worked so long because there were no really new technologies to invest in. During these same 10 years there was something of a desert of technology and business innovation on the horizon, providing another reason why technology has been underused in the enterprise. But all of that has changed now.
The economic, competitive and customer context have all reduced the potential of existing technologies, par-ticularly when a context change is not accompanied by a technology change. The digital future further acceler-ates these changes, as CIOs see mobile, information and cloud as reversing this trend. So now we have a new context, new technologies that reduce the potential of current technology operations and investment.
If executives, including the CIO, want to raise this number, then they will need to change the strategic relevance, resources and skills assigned to technology. This number cannot increase by repeating a past of ‘doing more with less’ if they expect to create value in the future.
Q. Can IT realise its full potential and support the enterprise going forward?
The answer is yes, but to fill such a big gap, CIOs cannot merely work harder, especially when they consider the factors that have changed the enterprise. Over the last 18 months, digital technologies have reached a tipping point with business executives. CIOs have little choice but to increase technology’s potential in the enterprise,
and this means evolving IT’s strategies, priorities and plans beyond tending to the usual concerns.
This means finding answers to a new central question:
‘how will technology support growth?’ This question replaces the prior one of ‘how to control IT cost?’
Q. Will IT budgets be boosted in 2013 to allow CIOs to weighted global average decline of 0.5 per cent.
However, it is not appropriate to think that CIO’s have to re-slice the IT budget pie to make room for digital technology investments. That is a ‘more with less’ view that is ultimately self-defeating.
The bottom line is that the CIO cannot expect to secure additional funding without assuming new responsibilities or producing new results. CIOs can get money to do new things; they just can’t get more money to do the same old things.
Q. What are the top CIO priorities in 2013?
Digital technologies dominate CIO technology priorities for 2013. The top 10 global technology priorities revealed by the survey reflect a greater emphasis on externally oriented digital technologies, as opposed to traditional IT/operationally oriented systems.
Data and analytics were ranked as the key priority for CIOs in 2013, followed by mobile computing, cloud computing and collaboration technologies.
CIOs see these technologies as disrupting business fundamentally over the next 10 years.
When asked which digital technologies would be most disruptive, 70 per cent of CIOs cited mobile technologies, followed by big data/analytics at 55 per cent, social media at 54 per cent and public cloud at 51 per cent.
The disruptiveness of each of these technologies is real, but CIOs see their greatest disruptive power coming in combination, rather than in isolation.
Q. So what will corporate IT leaders be doing differently in 2013?
Digital technologies will certainly provide a platform to achieve results, but only if CIOs adopt new roles and behaviours to find digital value. CIOs require a new agenda that incorporates hunting for new digital innovations and opportunities, and harvesting value from products, services and operations.