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i <3 writing| | Is it possible for a business to achieve competitive advantage using information technology?
1. Introduction
Much like the lives of animals in an ecosystem, business is about surviving – outperforming your competitors and staying away from dangers. Some would argue that information technology is your prey; it is the future of all businesses which should be used aggressively to gain competitive advantage over your rivals. Others say it is your predator; it is doomed to failure which will eventually drain much resource or even bring down a business. It would be unwise to assume blindly that either of the statements is absolutely right or wrong. Information technology is a tool that can be used or misused, and whether or not it will give you an advantage depends on a company’s business strategies. Regardless, it is undeniable that Information Technology is transforming business. The change is not just reflected in the speed and efficiency of transactions, but also to the extent of business models. Malone (1987) predicts that the advancement of IT will eventually shift industries to electronic markets and away from hierarchies. This means more and more businesses will be coordinating the flow through supply and demand forces and transactions between a wide variety of external suppliers and firms, instead of having sole supplier and customer relationships. So, will the transformations originated from the use of IT bring competitive advantage to a business?
In order to gain competitive advantage, a businessman must understand, exploit or even repel the latest business trends. Globalisation and industry collision are some of the strategies they can adopt to increase profitability. Customer sophistication means that customers are so flooded with information that they are more likely to switch to a substitute product or service. Moreover, new entrants sprout daily and threaten established businesses, much like the example of Google storming the search engine industry a decade ago. Today, they have more market share than Yahoo. Not to mention virtual organisations like Play.com who are gaining on the old school HMV. A good businessman will predict and tackle these to obtain a competitive edge over his rivals. And one of the biggest tools he can use is information resources.
2. Cost Advantage and Differentiation
Michael Porter (1980) states that profitability is related to a firm’s attractiveness and position in that industry. Ultimately, a firm’s strategies can be classified as either cost advantage or differentiation. The former means that the firm concentrates on becoming the low cost supplier in the industry. It has the choice of selling their products or services at the average price to gain a better profit than its rivals, or below average to obtain a bigger market share. This can be achieved by improving the efficiency of the business processes, gaining access to cheap raw materials, or making good outsourcing decisions. Outsourcing operations to specialised companies correctly can reduce cost and improve quality of processes. By lowering the total cost of production, competitive advantage is
achieved. Differentiation strategy states that a firm can focus on offering products or services that have unique attributes, which is of higher value than average products in the industry or perceived by customers to be better than those produced by rivals. In this case, customers can hardly find a substitute of products. Therefore, the firm can charge a higher price for its products or services, which can lead to a higher net profit. (Porter, 1980) With higher profit, more can be achieved as the firm can invest more money on improvements or developing new technology. This will be a clear competitive advantage.
The two strategies mentioned have been used by Dell Computer Corporations and with significant levels of success. Dell stopped selling personal computers in store completely because stores are expensive to maintain and it is time consuming to reach customers in this way. The management decided to focus on maintaining a virtual organisation with the help of an efficient information system. The infrastructure allowed Dell to connect its production system to suppliers of computer components, which allowed them to order stock according to demands. This removed the need to store large amounts of hardware, which will become outdated in a short time. As a result, Dell was able to clear more percentage of stock than its competitors. The removal of expensive stores and the reduction in unsold stock gave them a cost advantage, which they exploited wisely. Since then, Dell had been famous for low-price personal computers. With the infrastructure so ahead of time, Dell was also able to differentiate themselves from its competitors. The computerisation of the ordering process significantly reduced the time required to build customised computers (Keri E. Pearlson, 2006). Dell stood out as the faster and cheaper counterpart which competitors found hard to replicate in a short time. Consequently, customers could not find a replacement. Cost leadership and differentiation was used by Dell to gain a competitive advantage. And it was all because of IT.
Many people would question the sustainability of the competitive advantage of Dell. Nicholas Carr, for example, said that IT will become a commodity, and the competitive advantage will eventually be lost. As it becomes more and more ubiquitous, the core functions of IT – data storage, data processing, and data transport – will have become available and affordable to all. In addition, he stated that IT was perfectly replicable, as it is effortless to copy ideas as bytes of data and processes as generic applications. For Dell’s competitors, they just need to come up with the same IT system. After all, the mode of IT will shift from being a propriety technology to an infrastructural technology. (Carr, 2003) So the question is now: Has Dell lost their competitive advantage?
The answer is an absolute and resounding no. In the first quarter of 2008, Dell sits firmly as the top PC vendor in the United States with 31.4% market share (Gartner). This is substantially higher than that of HP (25%) and Acer (9%) (Apple, Dell big market share winners for the first quarter, 2008). It was more than a decade from the application of a state-of-the-art information system (1996), but guess what, Dell remained the competitive advantage. Carr failed to notice that it often takes a lot of time for competitors to copy an advanced IT system. Before they managed to do so, Dell has gained enormous amounts of profits with their market share. Money earned will become assets of the company, which cannot suddenly be lost. Albeit too conservative, Dell may simply put all of their extra money into a bank and get interests. This privilege over other companies is competitive edge which they can exploit further to strengthen the company. Dell did not sit back and do nothing with the extra funds. In 1996, they improved the localisation of the website providing 14 languages worldwide. In 1999, they launched the E-Support system to improve technical support for customers. In 2005, Dell hired thousands of sales and support personnel to handle inquiries further boosting their customer service (Dell official website). While Dell’s rivals are making plans on copying their IT system, Dell has come up with something more, something better, and something new. This consistent flow of IT innovations drives their rivals back to their drawing board, and Dell remains their competitive edge.
Also, Carr was overly pessimistic. It is never wise to assume a technology has passed its prime. Saying IT is a commodity will relate him to scientists like Dr. Lee De Forest, inventor of the vacuum tube and father of television, who said “Man will never reach the moon regardless of all future scientific advances”. Ken Olson, founder of Digital Equipment Corp., also forecasted that “There is no reason anyone would want a computer in their home” (Predictions from the past). These people are geniuses in their time, but today they look like fools. Companies need to ask themselves a few questions, “Have we used technologies like voice recognition or virtual reality in online sales? How can we use IT to help disabled people buy? How is nanotechnology going to help?” These are a few things that even Google will not give you a definite answer, because in reality there is so much that is yet to be used. Companies with the foresight and faith in a technology and the first to come up with an innovation will be rewarded with competitive advantage. It has always been so.
Differentiation does not just come in services, but also a few things that Nicholas Carr has forgotten. With differentiation strategy, companies can also obtained assets like goodwill and brand name, which are shadowed by customer confidence and loyalty. Their aggressiveness in IT will give them the image of the first-mover in the industry, and customers will feel that they are embracing the cutting-edge, even if competitors in the industry have imitated them. This is exactly what is happening in the gaming industry. Nintendo shocked the world with a motion-sensing controller “Wii Remote”, and Sony soon copied them (within 8 months) releasing the “SixAxis” controller with even better motion-sensing capabilities. The readers of this article probably do not know about the motion-sensing controllers of the PS3. It is all about the Wii nowadays. Nintendo managed to build up a brand image first and crafted Wii as the motion sensing gaming console, leaving no room for Sony to shine. This is shown by the lacklustre sales of PS3 and the shelf-clearing popularity of Wii. The first-mover competitive advantage brings a firm to success. And it was all because of IT.
3. Web marketing
The boom of the Internet also transforms the mode of businesses. McKinsey (2007) predicts that by 2010, the majority of consumers will use the web to learn more about items they are about to purchase, and one-third will carry out a proportion of purchasing online. The Internet is so prevalent that in EU over 50% of households have access to it, and hence companies will need to adjust their modes of operations. The Internet has given rise to new advertising campaigns as opposed to traditional forms of advertisements on television and radio. Holland et al (2007) suggests that web visibility be used to measure the effectiveness of web marketing. Web visibility refers to the quality of incoming links for a particular firm, and those from large, reputable media sites are better than small, relatively unknown sites. Also, a website with search engine ranking on the likes of Google and Yahoo will have a higher web visibility.
Since the Internet is such a crucial part of people’s lives, companies can exploit it to achieve competitive advantage. Web visibility is similar to the location of a store. Is it convenient for access? Does it capture a lot of passing traffic? Is it easy to use? If companies can obtain a higher web visibility, which is analogous to having a store in a popular shopping centre, they will have an advantage over less visible competitors, which has a branch in the middle of nowhere. Some may argue that this is not the case because other companies will soon follow suit and put up their own advertisements online. However, it is not what a company does that matters, but how the problem is approached. Web visibility is like media advertising on TV or newspapers. If two companies both spend the same amount of money on an advertisement on TV, would the end result be the same? No. Because their advertisements will never be the same, and have different impacts on marketing.
We use IT to reach out to customers because it is part of their lives, not because it is a magic wand. To produce successful results, thoughts will have to be put into the advertisements, and like for traditional advertisements, firms will need to think about their business objectives and customer needs. The thing of utmost importance is to use the interactivity of the Internet to get attraction, and the most thoughtful will win. Over time, competitive advantage will loom into view, shown by new sales and new market share gains. In fact, competitive advantage from IT has been acknowledged by a study. Tesco financial service has been analysed over a 6-month period. Increased web visibility resulted in increase of unique visitors and visibility relative to competitors to their website, which will in turn generate more sales (Christopher P. Holland G. D., 2007). This is again brought to a firm by none but Information Technology.
4. Business Processes and Customer Relationship
Malone (1987) predicts that even though businesses are shifting towards electronic markets, electronic hierarchies which require companies to work closely with predetermined partners in a production chain, will still have standing ground. It will be used mainly for shortening the development cycle, increasing the number of designs made, reducing coordination and manufacturing costs, and producing higher quality products. One of the most important predictions, however, was the move towards shared databases to improve business processes and strengthen partnerships between firms. In any production partnership, data that must be shared include engineering drawings, parts descriptions, bills of materials and engineering change notices (ECN). ECN is deemed to be a people-intensive, time consuming, and error-prone administrative activity. A shared database allows people to change the ECN electronically and the amount of staff needed for administration may be greatly reduced. This increases the efficiency of product development cycles. With a shared database, a customer is unlikely to switch vendor because of the time and investment required in making changes. Over time, the database will become physically, humanly or time specific. It becomes something which cannot be readily used or copied by other firms. In fact, it is something they will never get their hands on. In a hierarchical relationship, both firms are benefited by the use of a shared database. The data accumulated can be used by both parties for analysis and value-adding.
In the translation industry, business-to-customer relationships are one-off and on a per-job basis. This kind of electronic market framework does not guarantee that customers will buy services from the translation company again, and the supplier faces the risk of having an unstable income. The concept of a shared database has revolutionized the way a firm works, and a sustainable competitive advantage can thus be achieved. Thebigword is a typical example. They released a service called “translation memory” which allows cross-checking of revised documents with the database of previously translated phrases and documents. Translation memory allows translators to work according to the preference of customers, because they can customize the phrases they want. One of thebigword’s customers is British Airways. By linking their website to thebigword’s database, a change in the BA website will trigger a request for a new translation which is sent to a dedicated team of translators, who are supported by the translation memory, automatic document management and web services technology. In this way, British Airways managed to provide a lucid system which ensures customers worldwide can obtain the latest information in their preferred language. This system allows BA to move from many suppliers for different languages to one and reduce the expenses. For thebigword, the e-procurement system which generates quotations automatically ties the administrative process of billing to the business processes. Customers will also be better off because they can decide whether to use the service depending on price, rather than facing the risk of being over-charged (Christopher P. Holland D. R.).
Over time, customers of thebigword will develop a database for themselves for even more efficient and accurate translations. As they use the service more frequently and build up usage, value-added information in areas such as budget control, management information and customer defined access control will be developed. The customers will not want to stop using the service because the same database will not be found in other systems; it is unique. The system allows the business relationship to flourish, and thebigword manage to move away from one-off transactions to longer-term relationships. Even if Nicholas Carr is right about the commoditization of IT, the knowledge specificity of the database and the customer relationship gained from it cannot be removed or easily stolen by competitors. This is a razor-sharp competitive advantage that is hard to blunt. Without the linked database, thebigword will still be stuck in the commoditized translation market; without IT, thebigword will just be another translation company.
5. Conclusion
Information Technology, when used correctly, can bring cost advantage, differentiation as well as advertising values. It brings suppliers and buyers closer together resulting in mutual benefits. These together form an unrivalled competitive edge which competitors find hard to overcome without incurring huge costs. However, it is not to say that the implementation of IT does not come with risks. Pearlson (2006) described some of the risks that executives have to beware. Firstly, a firm may inspire a larger competitor to develop a better IT system. FedEx allowed customers to track the location of parcels being delivered but UPS, which had much deeper pockets, rose to the challenge with a much better implemented system. Secondly, the implementation could demonstrate bad timing, and customers may not be mentally ready to use the newer technologies. Thirdly, information systems can be implemented too poorly for good use. Some systems are far too complex and customized that they had a negative impact on the operations of a firm. Finally, information systems are prone to copyright infringement. For example, Napster was sued by a number of companies in the music industry and shut down by court order.
Nonetheless, these problems are typical of business processes and not limited to IT. Experienced executives should have come across similar problems in processes other than IT and have been equipped the ability to deal with them. It is all about risk management and taking precautions before actions. Non-believers always focus on the negatives and tell you not to use IT aggressively. Yet in the animal kingdom, the predators are the ones which survive. In football, the team which never scores will never win. Being aggressive means a firm can set standards for others to follow. Being aggressive allows a firm to polish their brand name which can last decades. Being aggressive, you can draw customers closer to you and away from your enemies. In contrary, being passive only allows other companies to gain an advantage on oneself. Being passive means the executives are playing a guessing game daily, which makes us wonder what they are for. Aggressiveness is desirable. It has always been true from the animal kingdom to the business world. Now, we are just adding IT to the formula and executives should in no way be frightened.
Bibliography
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Carr, N. G. (2003, May). Nicholas Carr's Blog - IT Doesn't Matter. Retrieved Jan 13, 2009, from Rough Type: http://www.roughtype.com/archives/2007/01/it_doesnt_matte.php
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