What extent do you agree that information technology can confer competitive advantage to a business?

With the demise of the dotcoms corporate scholars and experts perceived the decline of the information technology edge. These observers have predicted the digital mammoths as being too quick in achieving too much too soon. As with any business that expands too quickly based on brittle foundations the dotcoms had been inclined to its inevitable fate. These observers failed to notice the cause for the fate of the dotcoms had not been information technology but business models adopted by these organizations. According to David Stauffer (2005) companies whether young or old achieved success in the 21st century have not sprung out of nowhere. They all have based their strategies on strong foundations and business structures. Organizations like Office Depot, Dell, Amazon and EBay have succeeded not because they have become "online" but because they have adopted a competitive strategy and gained an edge over their rivals based on competitive business models.

The following discussion argues that information technology like any business strategic tools can be used for the benefit of the organization. What organizations that endeavour to use IT as the basis of organizational restructuring need to understand is that IT can only confer business competitive advantage to the extent that the organization integrates it into its operational standards. On its own IT cannot be a competitive advantage. Scope The discussion aims to explore the issues and debates prevalent among scholars whether IT does nor does not confer competitive advantage in terms of operational and business strategies; how IT can benefit the industries and economy alike; and investigates how firms that have not already integrated IT into their models achieve competitiveness and competencies. In the process the researcher plans to enumerate on the various practical and theoretical backgrounds that could be useful for modern businesspersons and scholars alike. Discussion

Business Strategy and competitive advantage Competitive advantage and IT have often been misjudged and misinterpreted by management and business strategists. Companies according to Michael Porter (1998) need competitive advantage in order to achieve its strategic goals. Competitive advantage can be of two types: a. the cost advantage b. the differentiation advantage

When firms are able to deliver to their customers at a lower cost than it is said to have gained a competitive advantage over its rivals (cost advantage). Alternative if its product features and benefits exceed those offered by its competitors it is said to have a differentiation advantage. Given these competitive advantage features, one can now move on to what leads to cost or differentiation advantage. Porter (1998) is of the opinion that a business model of competitive advantage is based on its ability to manipulate its resources, create distinctive competencies or capabilities. In this context it is imperative to note here that during the dot.com bubble most companies did not change their business models but had become online based on the same structure. They depended on the uniqueness of the Internet and information technology to give them an edge over rivals not realizing that information and related technologies does not offer much unless it is coupled with some kind of integrated organizational strategies. Stauffer (2005) for example has indicated that companies are successful in today's business environment because they integrate the clicks (virtual) and bricks (physical). He points out how organizations must support its physical structure by meticulously strategizing based on the current resources and utilizing its virtual capabilities to drive operations. Technology therefore should be the tool for achieving organizational strategies and not be the differentiation point. It should be used as the means for cost advantage by using it to structure production, deliver services, and carry out operational functionalities to allow customers to switch from clicks to bricks and vice versa. Thus Barnes and Noble have succeeded in gaining a competitive advantage over Amazon not because of its presence on the Internet but because of its ability to use its extensive database on books available at its physical stores online and allow the same consumers to choose products online/offline. Information systems

Information technology in the form of systems for support to create efficiency in daily operations; to create value; and to achieve differentiation through product deliverance can offer leverage for companies that adopt it. Suresh Kumar (2005) writes that business processes require business innovations in making process reengineering meaningful and worthwhile for the business. Information systems not only facilitate by smoothening the business reengineering processes through improvement in workflow design, job requirements, organizational structures and operational efficiencies but also enable organizational entities such as management to achieve agility in competitive performance.

This view is consistent with those presented by Davenport in "Enterprise Information Systems (2005) in which he argues how information systems have become an integral part of how organizations work and compete in today's business environment. He is of the opinion that without information systems, that is to say systems that support business activities, organizations would be setback in managing customers, procurements, supplies and inventory, and even managing its employees. Especially in organizations that have branches and units spread far and wide across the globe, it is critical to have integrated information systems that would help to collaborate the various departments through integration such as:

- "accounting and financial - human resources management - sales and order management - logistics and supply chain - manufacturing - inventory management - customer relationship management" (Davenport 2005)

Not only are this but information systems useful in reducing business transaction activities which in turn affect costs. Firms such as SAP, Oracle and PeopleSoft have concentrated on creating value through supply chain software because they realize organizational needs and because their products have been designed to address the complexities in processes, choices, uses and users inherent in dynamic organizations (Davenport 2005). However, this is not to say that such information systems are fault-proof. Despite enterprise systems uses and supports, the key challenge is for management to identify what they consider changeable, what is dynamic and which aspects of their organizations can incorporate change. Of course having a flexible organizational structure helps but it does not negate misinterpreting opportunities, misjudging the usage of the information systems; and misuse of technology for wrong purposes etc. Business intelligence

The purpose of information technology is to create business intelligence a concept derived from the Japanese which the Western world has been slow to adopt. According to Mark Davis (2005) business intelligence is the source for achieving competitive advantage because legitimate innovations support business functions. Information technology too have the important role of transforming business functions to intelligent functions and help in establishing competitive advantage. For example imagine a web site that offers a list of car models available for sale. The function of the website thus would only be that of a brochure listing and offering information on the car models. Competitive functionality would be if the website offers interactivity in terms of allowing users to choose, make choices and make the purchase decision online. This functionality would therefore create value for the user by saving time, efforts and resources. Furthermore, Davis writes intelligent business information systems would be one that allows organizations to: "track current and potential competitors, analyse markets, develop profitable new products, determine likely candidates for acquisition or merger, monitor technological developments, and keep abreast of a broad range of political, economic, social and legislative trends with significant impact on a company's future" (Davis 2005) Not only this but usefulness of information technology would be if organizations identify business processes that could be made intelligent, integrate it for providing focussed and directional support to enhance commercial processes. Intelligent processes serve the purpose of inquiry and analysis which in turn support competitive advantage. Core competencies in Business Web

Davis' theory thus support the cost advantage. Don Tapscott (2005) furthers this ideology by outlining that transaction costs have been in existence ever since man has learned of trade. Corporate agility, efficiency and resources are useless if they are not aimed at minimizing transaction costs. This may comprise of: a. search costs for finding resources, suppliers and intermediaries for distributing products; b. Contracting costs for exchange and negotiation with contractors. c. coordination costs which involve the cost of coordinating resources and processes.

Any change in the organization like process reengineering or structuring of organizations have to bear in mind how the activities impact transaction costs. Consistent with this ideology, Tapscott is of the opinion that "a firm will expand until the costs of organizing an extra transaction within the firm become equal to the costs of carrying out the same transaction to the open market." Yet despite this fact it has been observed that businesses have expanded to the internet using its framework for modelling their businesses and expect miraculous successes. Tapscott thinks that such businesses negate their focus on core competencies and how these competencies such as employees, resources and suppliers will adversely affect (or do not) the transaction costs. Eventually they will realize that some resources are difficult to mobilize which add costs to mobilization while other resources can be acquired instantly from the places where they are ordered therefore decreases the transaction costs. In sum technology may and may not be the basis for formulating core competency, other resources may do. Operational Standard

In the above context it can be said that transaction cost is the essence of strategic development. Contemporary organizations must understand the importance of strategic development, alliances and management. Information technology is merely a tool that supports all of these aspects but it cannot be used as the sole resource for achieving them. Michael Cunningham (2005) in his work "Making B2B Your Operational Standard" realizes the importance of collaborative commerce systems and indicates that enterprise benefit from across the supply chain productivity as it reduces costs and offers cost and process differentiation advantage. Technology in this regard helps out by minimizing the chain through instant access and reduce response time for users. This theory is also supported by Nirenburg (2005) who is of the view that developing an internet era mindset throughout the organization may not be as different as physical organizations because the basis for the relationship between the business models are the same. At the end of the day the virtual world and the brick world have to collaborate to achieve satisfaction from suppliers, companies and customers. Thus integration of information technology is more of developing core competencies through collaboration rather than using it as a single source for strategic development. Virtual Collaboration

The essence of Nirenburg and Cunningham's views are more pervasive. No doubt in their own right they have been accurate in predicting a collaborative framework for business operations but they have not enumerate on how these could be achieved. For this purpose one can refer to Clegg, Hermens and Porras (2005) Virtual Collaboration. In this they discuss how organizations need to collaborate for the purpose of responding to customers fast, add value to the organizational model and allow partners to bring together resources and to win over customers. It is only through corporate alliances and governance that one can achieve competitive edge over rivals. And because technologies like the Internet, telecommunications and computers enable organizations to become knowledgeable it is likely that businesses achieve effectiveness and competitiveness. However, businesses on their own cannot achieve this unless the organizational processes, activities and management becomes attune to the requirements of information technology - that is organizations must involve people to learn, imagine, develop, innovate and internalize knowledge before they can effectively use it for the purpose of achieving competitive advantage. As Clegg, Carter and Kornberger (2004) indicate organizations must eliminate the seven gaps of strategic planning before they can effectively achieve their desired goals: (i) "the gap between managerial fantasy and organizational capabilities; (ii) the gap between actual, clear goals and possible, unpredictable futures; (iii) the gap between planning and implementing; (iv) the gap between planned change and emerging evolution; (v) the gap between means and ends; (vi) the gap between a planning head (management) and a planned body (organization); and finally, (vii) the gap between order and disorder" (Clegg, Carter and Kornberger 2004). Summary and conclusion

From the above discussion one learns that competitive advantage in organizations is the result of cost advantage or differentiation advantage. In this sense information technology as a tool does not facilitate advantage but management can utilize it to achieve it. Successful companies that uses information technology in their business model after having identified their key competencies with respect to the operating environment and not because information technology would differentiate their business model. Instead technology can help support firms operations by creating value, and achieving differentiation through product deliverance. It can help organizations in innovating its business processes which in turn affect its bottom-line costs and thereby help in gaining a competitive cost advantage over rivals. In any of the processes within the organization, information technology can be integrated to help to achieve bottom-line successes whether it is human resources, financial resources or customer relationship management. The challenge however for organization is to identify which processes will be most affected by the change. Change is necessary because organizations need to be dynamic and intelligent in order to improve functions and increase value to the consumers. Not only this but intelligent business processes help in strategic thinking and development of strategies for organizational goal achievements. More importantly it allows the organization to achieve core competencies by allowing it to collaborate within its units, suppliers, other organizations by creating a network of businesses. the bottom-line is to achieve organizational, customers and employees satisfaction. The key is not inherent in information technology but in the ability of the management to use it to develop competitive advantage. Thus information technology in terms of the above confer to business competitive advantage by allowing businesses to become flexible; collaborate; innovate; efficient; and eventually differentiate and reduce costs. Information technology on its own is not a competitive advantage but rather it is a tool by which organizations can extend their competencies. Despite many claims and perceived notions, information technology cannot be engaged with the view to add advantage. As Clegg, Carter and Kornberger (2004) indicate unless businesses learn to eliminate the gaps between its processes elements integrating expensive information systems would not mitigate costs neither would it help in achieving competitive advantage. The essence of business as discussed earlier is in strategic development and integrating business intelligence in the processes. This can be achieved by integrating information systems but the fact remains that businesses depend on its modulation to the environment; it depends on the effective use of resources; it relies on management strategies; and it requires constant change to remain dynamic within its operational environment. Information technology allows organizations flexibility and the ability to respond fast to change but it does not necessarily guarantee success.

Source: Essay UK - http://doghouse.net/free-essays/information-technology/competitive-advantage-to-a-business.php


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