Harvard Business Publishing is an affiliate of Harvard Business School. As noted earlier, the role of a company and its product in the buyer’s value chain is the key determinant of differentiation. Modern IT solutions can help you collect, analyze, process and store data, leading to … For example, Louisiana Oil & Tire has taken all ten of its salespeople off the road and made them into telemarketers. This action plan should rank the strategic investments necessary in hardware and software, and in new product development activities that reflect the increasing information content in products. Information technology is changing the way companies operate. Each value activity has cost drivers that determine the potential sources of a cost advantage. Q1:->How can information technology support a company’s business processes and decision making, and give it a competitive advantage?Give examples to illustrate your answer Ans.1. Competitive Advantage with Information Systems Porter’s Competitive Forces Model Strategies for Dealing with Competitive Forces Strategic Use of Information Technology The Value Chain and Strategic IS Competing on Global Scale Competing on Quality and Design What is Quality How IS improve Quality Competing on Business Process Systems that connect buyers and suppliers are spreading. The strength of each of the five forces can also change, either improving or eroding the attractiveness of an industry.5, Exhibit V Determinants of industry attractiveness. Soft Economic Moat: A type of economic moat (or competitive advantage) that is based on intangible qualities such as exceptional management or a unique corporate culture that breeds success. If your business can create and maintain competitive advantage, then you can position yourself as a market leader. Knowing this information allows you to give the customer’s exactly what they want, which … Give your internal clients the freedom to adopt. See Michael E. Porter, “How Competitive Forces Shape Strategy,” HBR March–April 1979, p. 137. Most general managers know that the revolution is under way, and few dispute its importance. By bringing General Wood into the company in November of 1924, Julius Rosenwald acquired much more than the higher order of managerial skills he was seeking. Your competitive advantage is what sets your business apart from your competition. Victor E. Millar, “Decision-Oriented Information,” Datamation, January 1984, p. 159. For example, a magazine distributor offers retailers processing credits for unsold items more efficiently than its competitors. One of the primary advantages of information technology in business lies in its ability to process complex data. This improves the position of both brokers and homebuyers in shopping for mortgages. Lowering cost. In 2008, Brynjolfsson and McAfee published a study in the Harvard Business Review on the role of IT in competitive advantage, entitled “Investing in the IT That Makes a Competitive Difference.” Their study confirmed that IT can play a role in competitive advantage, if deployed wisely. Linkages often create trade-offs in performing different activities that should be optimized. Linkages exist when the way in which one activity is performed affects the cost or effectiveness of other activities. 1. Today, information technology must be conceived of broadly to encompass the information that businesses create and use as well as a wide spectrum of increasingly convergent and linked technologies that process the information. Shipowners now choose an engine that is more precisely suited to their needs and thereby recoup significant fuel savings. The new technology, however, makes it feasible to supply far more information along with the physical product. It spawns whole new businesses, often from within a company’s existing operations. Your buyers will know soon enough if you can’t. Organizations need to distribute the responsibility for systems development more widely in the organization. A good IT program can make sure you have products exactly when you need them. DO NOT COPY. Alfred D. Chandler, Jr., The Visible Hand (Cambridge: Belknap Press of Harvard University Press, 1977), p. 86. The use of bar-code scanners in supermarket retailing has turned grocery stores into market research labs. Potentially high information intensity in the value chain—a large number of suppliers or customers with whom the company deals directly, a product requiring a large quantity of information in selling, a product line with many distinct product varieties, a product composed of many parts, a large number of steps in a company’s manufacturing process, a long cycle time from the initial order to the delivered product. Of course, once you have identified your competitive advantage(s), you're not done. One of the ways that information systems have participated in competitive advantage is through integrating the supply chain electronically. The applications of information technology that companies are using today are only a beginning. Smith got the job. Buyer needs, in turn, depend not only on the impact of the company’s product on the buyer but also on the company’s other activities (for example, logistics or after-sale services). The new information technology makes it possible to customize products. The cost of computer power relative to the cost of manual information processing is at least 8,000 times less expensive than the cost 30 years ago. Suppose there are 3 fruit sellers selling the exact same quality of apples near your house, but one of them attracts over 50% of the customers while the other two just sit and see the customers buying from him. The competitive advantage of a narrow scope comes from customizing the value chain to best serve particular product varieties, buyers, or geographic regions. 2. Retailers can run an ad in the morning newspaper and find out its effect by early afternoon. For more information on the value chain concept, see Michael E. Porter, Competitive Advantage (New York: Free Press, 1985). This article aims to help general managers respond to the challenges of the information revolution. The technology increases a company’s ability to coordinate its activities regionally, nationally, and globally. Changing competitive scope. Not only is each force likely to change but industry boundaries may change as well. Large-scale production is no longer essential to achieve automation. Information technology (IT) can be defined in various ways, but is broadly considered to encompass the use of computers and telecommunications equipment to store, retrieve, transmit and manipulate data. © 2020 Career Advancement Blog. After surveying a wide range of industries, we find that information technology is changing the rules of competition in three ways. They knew that their companies had problems; sales were increasingly difficult to get and profits were slipping. Competing nationally or globally with a coordinated strategy can yield a competitive advantage over local or domestic rivals. On-time delivery requires that operations, outbound logistics, and service activities (installation, for example) should function smoothly together. 5. One client in the home-improvement business who sold siding knew his product was “stronger and better” because of the materials he used. James L. McKenney and F. Warren McFarlan, “The Information Archipelago—Maps and Bridges,” HBR September–October 1982, p. 109. A service activity uses information about service requests to schedule calls and order parts, and generates information on product failures that a company can use to revise product designs and manufacturing methods. Does information technology make it feasible to produce new items related to the company’s product? By using information systems, companies can measure their activities more precisely and help motivate managers to implement strategies successfully.9. Compustat’s customers have access to corporate financial data filed with the Securities and Exchange Commission, and many companies have sprung up to perform energy use analyses of buildings. After surveying a wide range of industries, we find that information technology is changing the rules of competition in three ways. Quality programs help teams work together. Between 1958 and 1980 the time for one electronic operation fell by a factor of 80 million. A company’s value chain is a system of interdependent activities, which are connected by linkages. ADVERTISEMENTS: For any enterprising firm, the competitive advantage may stem from any of the host of functions it performs. You can use the theory of competitive advantage to advance your career. #CompetitiveAdvantage #BusinessStrategy The term "competitive advantage” refers to a unique advantage a company has over its competitors. Intermodal now uses microcomputers to link its offices to a center that calculates all prices. By employing a broad vertical scope, a company can exploit the potential benefits of performing more activities internally rather than use outside suppliers. To answer these questions, managers must first understand that information technology is more than just computers. We use cookies to ensure that we give you the best experience on our website. Equally important is the possibility that new linkages among activities are being made possible. Automation and flexibility are achieved simultaneously, a pairing that changes the pattern of rivalry among competitors. Information technology (IT) benefits the business world by allowing organizations to work more efficiently and to maximize productivity. This article focuses on ways to recognize and exploit the competitive significance of change. Conclusion: Big Data-A Competitive Advantage for Businesses . Many of a company’s activities—not just its physical product or service—contribute to differentiation. These changes do not mean that a central information-technology function should play an insignificant role. First, advances in information technology are changing the industry structure. For more information on how to help yourself or your business take the competitive advantage, contact Joel. - 6809302 These simple steps save you time and money. How information technology gives you competitive advantages of your business? Of course, without any doubt the efficient usage of information systems will give a lot opportunities to the companies and advantages to their business. The result: drilling time is reduced and some well-logging steps are eliminated. In the search for competitive advantage, companies often differ in competitive scope—or the breadth of their activities. 2. Finally, we outline a procedure managers can use to assess the role of information technology in their business and to help define investment priorities to turn the technology to their competitive advantage. In insurance brokerage, a number of insurance companies usually participate in underwriting a contract. Here are some advantages of technology in our lives: 1. Flexible computer-aided design and manufacturing systems have influenced the threat of substitution in many industries by making it quicker, easier, and cheaper to incorporate enhanced features into products. Since the time Henry Ford revolutionized the auto industry with the assembly line, companies have sought for a competitive edge using new technology or technology in a new way. The structure of an industry is embodied in five competitive forces that collectively determine industry profitability: the power of buyers, the power of suppliers, the threat of new entrants, the threat of substitute products, and the rivalry among existing competitors (see Exhibit V). A company should understand how structural change is forcing it to respond and look for ways to lead change in the industry. 3. ELECTRONIC DATA INTERCHANGE. Identify and rank the ways in which information technology might create competitive advantage. Top Business Publications Interviewed Joel. First, advances in information technology are changing the industry structure. One assignment for pit bosses has always been to keep an eye out for the big spenders. It sells credit-authorization and transaction-processing services to Phillips Petroleum and retail remittance-processing services to Mellon Bank. It can manage your inventory as well as the clerical supplies that keep offices running. Segmenting your business database allows you to identify the right information like promotions, messages, and specific emails that go with the right audience and meets their needs. From the wrist smartwatch we wear to the cars we drive, technology has changed every single aspect of our lives. Obviously, activities that represent a large proportion of cost or that are critical to differentiation bear closest scrutiny, particularly if they have a significant information-processing component. In the past, each local office set prices using manual procedures. In some cases, the boundaries of industries themselves have changed.7. In the trucking industry, Intermodal Transportation Services, Inc. of Cincinnati has completely changed its system for quoting prices. Linkages not only connect value activities inside a company but also create interdependencies between its value chain and those of its suppliers and channels. Technology can and is a catalyst for cutting costs, but it is time to stop looking at technology as merely an operational expense and see it as a competitive advantage. As a result, sales expenses have fallen by 10% and sales volume has doubled. Information technology impacts every aspect of a company’s processes and decision making. Pershing General Hospital is a 125-bed, […] On the other hand, physical processing will continue to dominate in industries that produce, say, cement, despite increased information processing in such businesses. To attract top talent—which is also crucial to keeping your business competitive—you need to have convenient and reliable options for mobile work. The costs of documenting each company’s participation are high. Your benefit is how you increase the company's profit. These banks may also need to invest in improved computer hardware and other facilities. That is, technology gives company 1 the greatest competitive advantage over its competition and company 9, the least. It’s vital that your company outshine other similar companies in order to maintain market share. An important concept that highlights the role of information technology in competition is the “value chain.”1 This concept divides a company’s activities into the technologically and economically distinct activities it performs to do business. Hunt-Wesson, for example, developed a computer model to aid it in studying distribution-center expansion and relocation issues. As with any competitive advantage you claim, make sure you deliver. An activity’s physical and information-processing components may be simple or quite complex. You’ll have a much harder time accomplishing your objectives if you let project managers allocate your developers like consultants. Activities with important links to other activities inside and outside the company are also critical. higher profit margin, greater return on assets, valuable resource such as brand reputation or unique competence in producing jet engines. Therefore, you can get feedback about who is saying what about your company. Specific advantages, or reasons for product development outsourcing, vary from business to business. To learn how your company can blow your competition out of the water, contact Joel. How Individuals Use Competitive Advantage . For a discussion of the two basic types of competitive advantage, see Michael E. Porter, Competitive Strategy (New York: Free Press, 1980), Chapter 2. Companies have permanently altered the bases of competition in their favor in many industries through aggressive investments in information technology and have forced other companies to follow. Investigate how information technology might spawn new businesses. Computer-aided design capability not only reduces the cost of designing new products but also dramatically reduces the cost of modifying or adding features to existing products. Therefore, you can get feedback about who is saying what about your company. These limits no longer exist, however. You’ll find you’re converting visitors to buyers faster and more often. IBM, which recently acquired Rolm, the telecommunications equipment manufacturer, is now joining the competition from the other direction. Exhibit III Information Technology permeates the value chain. Strategic information systems (SISs) are systems that support or shape a business unit’s or organization’s competitive strategy (Callon, 1996, and Neumann, 1994).An SIS is characterized by its ability to change significantly the manner in which business is operated. The new information technology is enhancing product performance and is making it easier to boost a product’s information content. "How Information Gives You Competitive Advantage." The information-processing component encompasses the steps required to capture, manipulate, and channel the data necessary to perform the activity. Don’t waste your advertising dollars on clients who won’t buy. For example, convenient, accessible information on maintenance and service procedures is an important buyer criterion in consumer appliances. Adoption of information technology resources allows companies to maintain a competitive advantage over their rivals. This convergence has profound effects on the structure of both industries. Similarly, Digital Equipment’s artificial intelligence system, XCON, uses decision rules to develop custom computer configurations. Nearly everything can be considered as competitive edge, e.g. Similarly, information technology helped Sulzer Brothers’ engineers improve the design of diesel engines in ways that manual calculations could not. The use of Big Data is becoming common these days by the companies to outperform their peers. While managers can use information technology to improve their industry structure, the technology also has the potential to destroy that structure. The new technology substitutes machines for human effort in information processing. As more and more of their time and […]. Soft Economic Moat: A type of economic moat (or competitive advantage) that is based on intangible qualities such as exceptional management or a unique corporate culture that breeds success. Its expansive e-commerce site now has it sending appliances into all 50 states. Digitalizing your organization can give you a competitive advantage by doing things better, faster, and cheaper than your competition. The company makes it so easy for clients to order, receive, and prepare invoices that the customers, in return, are willing to place larger orders. The merging of computer and telecommunications technologies is an important example. Most general managers know that the revolution is under way, and few dispute its importance. National Benefit Life reportedly merged with American Can in part to gain access to data on the nine million customers of American Can’s direct-mail retailing subsidiary. The benefits of scope (and the achievement of linkages), however, can accrue only when the information technology spread throughout the organization can communicate. Such industries were naturally among the first and most enthusiastic users of data processing. How can information technology support a company’s business processes and decision making and give it a competitive advantage? One of the major 5 advantages of information technology is its ability to keep money in your company’s bank account. Smith, developed data-communications expertise to meet the needs of its traditional businesses. Because of the falling cost and growing capacity of the new technology, many industries seem to be moving toward a higher information content in both product and process. It should be emphasized that technology will continue to improve rapidly. On the West Coast, some fishermen now use weather satellite data on ocean temperatures to identify promising fishing grounds. Soon you’ll find ways your competitive advantage is bringing in more clients and more income for your company. Can you give me some ideas? Sophisticated information systems segment your list so you can target new buyers and big spenders and spend little time on “lookers.”. Electronic control of the automobile, for example, is becoming more visible in dashboard displays, talking dashboards, diagnostic messages, and the like. 3, pp. A company’s search for competitive advantage through information technology often also spreads to affect industry structure as competitors imitate the leader’s strategic innovations. Good coordination allows on-time delivery without the need for costly inventory. A logistics activity, for example, uses information like scheduling promises, transportation rates, and production plans to ensure timely and cost-effective delivery. Second, information technology is an increasingly important lever that companies can use to create competitive advantage. A company can create competitive advantage by optimizing or coordinating these links to the outside. Questions 1. In other words, each of these functions are the sources of generating this much desired and valued competitive advantage and edge over others in the industry. 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