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To What Degree Does IT Influence Competitive Advantage?

Seminararbeit 2003 13 Seiten


Table of Content

1.0 Introduction

2.0 Information Technology in the World of Business
2.1 The Value Chain
2.2 Competitive advantage through IT
2.3 Managing IT
2.4 Measuring Value
2.5 Minimise Risk - take new once
2.6 The Barriers to a Successful IT Implementation
2.7 Guiding Principles for an IT strategy

3.0 Discussion

4.0 Conclusion

5.0 References

1.0 Introduction

The world of business has emerged from the industrial age into an information economy and transitioning further into a digital world, a "knowledge society” with information technology (IT1 ) as driving force behind it. In the past years, the relentless advances of IT in the world of business has been influenced by changing the ways in which corporation execute their daily operations, perform in markets and design their products. Many organisations are faced today with increased competition at a higher performance level driven by globalisation. This is supported by Ward&Peppard (2001i) who states that everyone’s working life and personal environment has been influenced by IT and is becoming an increased integral component. E-commerce and e-business are no longer buzzwords, they have infiltrated our homes via TV advertisement and Internet.

IT is an important factor for today’s organisations, which are forced to continuously re-profile themselves, changing functional hierarchies, and subsequently adapt to a very changing market conditions, effectively and efficiently. Organisation need to quickly and constant respond to customer’s needs and competitive pressure, with IT enabled services, products and distribution channels (Mutsaers,Zee,Giertz,1998ii). The continuous rapid improvement in IT is having a profound impact on competitors and competitive advantage of an organisation. There is a number of ways of looking at it, however the question here is not, if a company should make use of IT or not. It’s rather, how IT is implemented and subsequent adopted throughout an organisation, which ultimately confers competitive advantage. Every human endeavour in the world of business is influenced by IT, which is reaching across all lines of business globally.

2.0 Information Technology in the World of Business

In a study by Rey, Eckhardt, 2000 iii concluded that, “many business processes could be executed more efficiently and economically by simple applying the advantage of IT”.

IT is about managing technology and the understanding of how IT structure is put together with the business market in mind. In a company, technology is embodied in virtually every value activity (Porter, 1998iv) and its use of IT can affect competition. Nearly all industries sectors, such insurance, IS - To What Degree does IT Influence Competitive Advantage? banking, utilities, manufacturing, distribution, service, retailing, mining, engineering, wholesaling and others are affected by IT.

2.1 The Value Chain

The Porter’s value chain model can visualise the relationship of technology to competitive advantage in a company and the ability to achieve low cost leadership and/or differentiation through its value activities. Whereas, lowering cost and enhancing differentiation are the basic foundations of competitive advantage (Porter, 1998v). All activities of a company are placed into categories of which IT can create a profound influence in operational effectiveness, and ultimately confer competitive advantage.

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Table: The Value Chain (Porter, 1998vi).

Competitive advantage can be derived through process innovation as referred by Davenport (1992vii), which is an approach that fuses IT and human resources management. Process innovation carries an enormous potential for reduction in process cost (staff productivity, cost control), quality improvements (product quality), flexibility (increase market responsiveness), service level (order cycle time) or other business objectives (increase market share, and margin by adding value). This approach has been successfully implemented by Charles Schwab (Bhattacherjee,A,2002viii) a US discount brokerage and life insurance firm.

Historically, IT has been used to minimise costs in organisations. However nowadays, in a quest for greater efficiency of business, the role of IT has changed to a more pervasive and proactive one (Sohal & Ng, 1998ix). A good example is American Express (Computer Weekly 2002x) who is using IT initiatives in the face of the economic downturn to gain a competitive advantage. In general, for American Express, IT, the Internet in particular has delivered, expanded distribution channels and improved overall operation efficiency.

In the years, the Internet has become an increasingly serious political, societal and economic factor. Services provided through the Intranet, Extranet & Internet have become important tools for information exchange and communication in general. Multimedia supported applications such as complete business process (e-business / e-commerce), education (Tele-Teaching), entertainment and much more rely on these and related services. In spite of the limited confidentiality of the public Internet, utilisation is again gaining market importance after the implosion a couple of years ago. It can be said that the industry and management is dependent on a failure-free function of the Internet, as they are already dependent on the correct functionality of the computer.

As e-business is taking off integration services such as EAI (Integration application Services) driven by high-level business requirements are booming (Eastwood, 2001xi).

To shop without cash by just using a credit card was regarded a few years ago as a typical American lifestyle. Thanks to powerful data storage and transmission media, that guarantee the flow of information between the supplier of a product, the credit card organisation and the card holders bank, such transaction have become possible (Rey, Eckhardt, 2000 xii).

2.2 Competitive advantage through IT

A company can confer competitive advantage through IT by generating value for its customers such by offering a product with a superior added value at a competitive price/performance ratio. IT allows the development and application of automated order processing, material handling (logistics), manufacturing, warehousing (inventory management) and office task, as addressed in the value chain model thus creating new boundaries for versatile business interrelationships.

A good example where IT helped to fight a year of decline is described in an article by Gilbert (Information Week, 2001xiii), where US Manufacturer increasingly turned to IT to cut cost and reduce inventory. In addition, Corning, a $7.13 billion New York based manufacturer of networking equipment, had 70% of its sales tied to the slow moving telecommunication market. Corning ultimate task was, to focus on reducing cost through establishing supply-chain efficiency wherever possible, as the article further stated.

In order to achieve superior value, the company needs customer loyalty such as at (a US Online e-tailer), which has gone further in terms of e-CRM (Customer Relationship Management) and developed an automated Internet based customer service support portal. Their online customers can monitor and track their orders digitally.

Another good example, is Migros, a large consumer retail chain in Switzerland who introduced a customer IT “Smart Card” the “M-Cumulus” in November 1997, and ultimately making the “customer feel that he is a distinct member of a privileged club”, as Güllerxiv (2000) indicates in his presentation at the Well Placio de Congresos, Madrid (Spain). On a bi-monthly basis, M-CUMULUSxv participant receive a personalised package with special offers to profit from, along with their personal account statement. Migros has successfully accomplished its primary goal to cross-sell non-food categories with its M-cumulus. Two years after the successful launch of M-Cumulus, over 60% of the Swiss household have signed up and 20’000 new members are enrolled every month. Other Swiss companies/retailer/e-tailer’s have created their own knowledge management (KM), customer card programs similar to M-Cumulus such as, Active-Pass (Bernese Newspaper), DRS-2 Culture Club (Swiss Radio Station), Insider Card (PKZ, a clothing chain), Interio Plus Card (Interio, a furniture store), Joker Card (Swisscom, a telephone company), Supercard (COOP, a food retailer), PlusCard (Globus) and others.

The owner of the Seven-Eleven stores in Japan has been obsessed to capture customers needs continued better application of IT with convenience, quality, service in mind. The store has used IT to develop a “JUST-In-Time” sys]tem, which is allowing the stores to be extraordinarily responsive to consumer shifting tastes.

In praxis, knowledge management is to generate new knowledge for competitive advantage by mapping intellectual assets within the organisation, by making corporate information accessible, sharing of best practices.

In today’s IT driven organisation, Knowledge Management does enable companies to create a working environment at an individual level for the benefit of the organisation as a whole. At Xerox xvi(USA) focuses its KM efforts on a number of core capabilities that together form the foundations for achieving this goal for better accessibility to key information, networking technology in general (Intranet) and group ware are key solutions.


1 Information Technology (IT) encompasses also Communication Technologies. Alternatively the notion of Information and Communication Technology (ICT) could be used as an overall term, as recently cited by the Swiss Academy for Engineering Sciences (SATW)


ISBN (eBook)
ISBN (Buch)
650 KB
Institution / Hochschule
University of Strathclyde
2011 (September)
what degree does influence competitive advantage



Titel: To What Degree Does IT Influence Competitive Advantage?