Information technology's impact on competitive strategy and operations

¶ … Business Strategy and Operations

This work seeks to answer specific key question in relation to strategy and decision making in the it organization with focus on core operations and core strategy within the company. Much has changed since the early years of Information Systems conceived as being merely tools to support the operation and to provide additional services to management. However upon the discovery during the decade of the 1980's that it was critical to the strategic implementation within the organization the interpretations of strategy have changed. An organizational plan that focuses toward achievement of 'sustainable competitive advantage' over it competitors is what is referred to as 'Competitive Strategy'. From the perspective of Porter the corporation's performance is "determined by the extent to which they cope with, and manipulate, the five key 'forces' that make up the industry structure. Those five key forces have been identified as being the bargaining power of suppliers; the bargaining power of the buyer; the threat of new entrants; the threat of a substitute product; and rivalry among existing firms.

The Impact of it on Business Strategy and Operations

Objective

The purpose of this work is to research and answer specific key questions, which are useful in guiding strategic decision-making when evaluating the impact of an it Network on core operations and core strategy. The first of these questions is whether Information Technology can be used to reengineer core value activities and change the basis of competition. Secondly is it possible for it change the nature of relationships and the balance of power among buyers and suppliers? Further this work will examine the ability of Information Technology in reducing barriers to entry and in decreasing switching costs. Finally, this work will explore whether Information Technology can add value to existing products and services or create new products and services.

Summary

An organizational plan that focuses toward achievement of 'sustainable competitive advantage' over it competitors is what is referred to as 'Competitive Strategy'. From the perspective of Porter the corporation's performance is "determined by the extent to which they cope with, and manipulate, the five key 'forces' that make up the industry structure. Those five key forces have been identified as being the bargaining power of suppliers; the bargaining power of the buyer; the threat of new entrants; the threat of a substitute product; and rivalry among existing firms. Porter states that competitive advantage is obtained through the method used by an enterprise in organization and performance of discrete activities and states as well that operations in any business initiative could be subdivided into series and groups of activities. (Clarke, 1004) Examples of it applications in the use of the strategic stance of Porter can be illustrated through the groups of Product Design and Development, Operations, Marketing Sales, and Administration. According to Michael Porter one of the strategies described as follows should be utilized by the organization in competing in the market:

Cost Leadership: Operations are handled in a way that significantly lowers costs below those of competitors.

Differentiation: There are offering of perceived improvements in the products or services that compel the customer to pay more for those products and services.

Market Niche: Concentration on customer of a subset of the market that competitors are not providing adequate service to.

Interpretation/Analysis strategy that is demonstrated through the provision of customized products or services and do so in a timely manner. Creating value for the customer by providing something they want or need in products or services is what is referred to as the "value chain" or a series of activities that performance of creates value that the customers are glad to pay. If the organization is able to work in collaboration with customers and suppliers in reducing costs while increasing value the firm will greatly improve the competitive position that it holds. There are many differentiation factors in existence which are categorized into four major groups or "four generic strategies" which are that of the:

Product: This is in relation to quality, features, options, style, grand name, packaging, sizes, services, warranties, and returns.

Price: This is inclusive of list, discounts, allowances, and payment period and credit terms.

Place: This is the channels, coverage, locations, inventory and transport of the products; and Promotion: Demonstrated in advertising, personal selling, sales promotion and publicity.

The activities that 'add value' include the processes of "production, marketing delivery, and servicing of the product." Support activities are inclusive of those provisioning inputs that are purchased, technology, human resources or overall infrastructure functions in supporting primary activities. According to Clarke, (1994): Porter held that by "co-coordinating linked activities, an enterprise should be enabled to 'reduce transaction costs, gather better information for control purposes, and substitute less costly operations in one activity for more costly ones elsewhere. Through coordination and linking of activities the 'combined time' required for performance is lowered. Activities which the organization is subject to be impacted or influenced from are those of new technologies, new of shifting buyer needs, change in industry segmentation, shifts in the costs of availability of factors in production; and change in government regulations. Associated with business disciplines is the "value chain concept, activity-based costing as well as business process redesign and business process engineering." (Clarke, 1994)

Wiseman's five strategic thrusts are differentiation, costs, innovation growth and alliance. The intent in strategic costs thrust are the reducing of the enterprises cost profile through reduction or avoidance of specific costs, helping suppliers, distribution channels and/or customers in the reduction or avoidance of costs so that the organization is preferred and increasing the cost-profiles of the organization's competitors. The "Economies of Scale" enable the enterprise to "acquire, produce, process, store, ship, or sell products at lower cost per unit than smaller ones. The stated importance in gaining economies of scale includes specialization, automation, bargaining power, experience, and failures of proportionality. Innovation is purported by Wiseman to be the "adoption of new products or processes." Product innovation is involving of the creation of new products or new feature with the existing products in order to provide the customer with satisfaction. Process innovation is the improvement of efficiency or effectiveness in a process and may involve technological changes, organizational changes or both. Growth can be experienced in an organization through product growth, functional growth or geographic growth and may also be expressed through lateral growth. The creation of Alliances may also provide the organization with more power in bargaining. Four types of such alliances are 'product integration, product development, product extension; and product distribution." (Clarke, 1994)

Conclusion

The environment in organizations is experiencing rapid changes which is "forcing enterprises to change the way they operate" as well as change the products and services provided by the organization. Information technology enables operational and product changes. Information technology utilized correctly can assist the company in becoming more competitive through implementation and achievement of organizational strategies. Through examination of Porter's Five Forces management may address each of these five by developing strategies in focus of each. Management of the threat of substitute products include strategies which improve internal operations reducing costs and thereby reducing the customer's price as well redefining the organizations products and services. Any investment in the Information System Technologies is an investment which raises the dollar amount needed by a competitor to enter the market and thereby constitutes what is termed as a 'barrier to entry." (Clarke, 1994) Switching costs is the concept of increasing a customer's loyalty reducing the likelihood of the customer 'switching' to another provider. If a customer values the service provided by the organization and is willing to continue to purchase those services then the organization has achieved 'switching costs'. Information technology certainly has the ability to change the balance of power that is the dependence in supplier-customer relationships. This is evidenced in offerings of it services across many channels such as has been evidenced by Microsoft. The generation of new products in it which can support product delivery at a faster rate. For example the it Organization that creates software, provides technical support and training, processes payments as and finally enters into an agreement that is nonexclusive in nature with the manufacturers who then authorize the organization in marketing of those products provides the suppliers/manufactures with a great deal of power in terms of the value chain as well as lower costing products. Emerging technologies are one of the threats in the it business. It is possible that a competitor might advance quickly through offering of a new technology and this is always a possibility in the Information Technology Business.