Strategic advantages of Information Technology
The Role of It In Strategic Management Strategic Management Is the way an organization maps the strategy of its future operations. The term strategic points to the long-term nature of this mapping exercise and to the large magnitude of advantage the exercise is expected to give an organization. Information Technology contributes to strategic management in many ways (see Kemerer, 1997 and Callon 1996). Consider these eight.
IT creates innovative applications that provide direct strategic advantage to organizations. For example, Federal Express was the first company in its industry to use IT tracking the location of every package in its system. Next, FedEx was the first company to make this database accessible to its customers over the internet. Ted Ex has gone on to provide e-fulfilment solutions based on IT and is even writing software for this purpose (Bhise et al. 2000) 2. Competitive Weapons Information systems themselves have long been recognized as a competitive weapon dvcs and learnmouth, 1984 and Callon, 1996).
Amazon, com‘s one-click shopping system is considered so significant and important to the company‘s reputation for superior customer service that it has patented the system. Michael Dell, founder of Dell Computer puts it bluntly: The internet is like a weapon sitting on the table, ready to be picked up by either you or your competitor‖ (Dell 1999) Changes in processes
IT supports changes in business processes that translate to strategic advantage (Davenport, 1993) For example, Berri is Australia‘s largest manufacturer and distributor of fruit price products. The principal goal of its enterprise resource planning system implementation was ‗to turn its branch-based business into a national organization with a single set of unified business processes‖ in order to achieve millions of dollars in cost-savings(J.D. Edwards, 2002a) other ways in which IT can change business processes include better control over remote stores or offices by providing speedy communication tools, streamlined product design time with computer-aided engineering tools and better decision-making processes by providing managers with timely information reports.
Links with Business Partners. IT links a company with its business partners effectively and efficiently. For example, Rosenbluth‘s Global Distribution Networks allows it to connect agents, customers and travel service providers around the globe, an innovation that allowed it to broaden its marketing range (Glemons and Hann, 1999) Other examples, of inter organizational strategic information systems are presented later in this chapter.
Cost reduction IT enables companies to reduce costs.
For example, a Booz Allen & Hamilton study found that : a traditional bank transaction costs $1.07 whereas the same transaction over the Web costs about 1 cent; a traditional airline ticket costs $8 to process, an e-ticket costs $1 (lbm.coml.partnerworld/pwhome.nsf/vAssetLookuplad2.pd/sfile/ad2.pdf). In the customer service area, a customer call handled by a live agent costs $33, but an intelligent agent can handle the same request for less than $2(Schwartz, 2000)
Relationships with suppliers and customers
IT can be used to lock in suppliers and customers, or to build in switching costs (making it more difficult for suppliers or customers to switch to competitors) For example, Master Builders sells chemical additives that improve the performance characteristics of concrete. The company offers customers Master Trac, a tank monitoring system that automatically notifies Master Builders when additive inventories fall below an agreed-on level. Master Builders then resupplies the tanks on a just-in-time basis. The customer benefits from an assured supply of product, less capital tied up in inventory and reduced inventory management time and processing. Master Builders benefits because company competitors face a more difficult task to convince concrete companies to switch to them (Vandenbosch and Dawar 2002)
A firm can leverage its investment in IT to create new products that are in demand in the marketplace. Federal express‘s package-tracking software is one example. In Australia, IGI Explosives no longer views its business model as just selling explosives; it now also writes contracts for broken rocks. IGI engineers developed computer models that specify drilling procedures and explosives use for different types of rockfaces to produce rock in the sizes that the customer needs. According to Vandenbosch and Dawar (2002), ―The redefinition of IGI‘s role not only generated much higher margins for the business‖ It also gave IGI a much more defensible competitive position‖381. Competitive Intelligence
IT provides competitive (business) intelligence by collecting and analyzing information about products, markets, competitors and environmental changes (see Guimaraes and Armstrong, 1997). For example, if a company knows something important before its competitors, or it can make the correct interpretation of information before it‘s competitors, then it can act first. Gaining strategic advantage through first-mover advantage (the competitive advantage gained by being first to offer a competitive intelligence is such an important aspect of gaining advantage, we look at it in some detail next.