Achieving Competitive Advantage with Information Systems
This article ties together the concepts of information systems and competitive advantage. Take note of the examples of how information systems support business processes. Can you think of additional ways that information technologies help businesses every day? Review the quiz questions at the end of the reading.
Chapter three introduces concepts of competitive advantage that businesses face and how information systems play an important role in achieving that. Porter's model, the most widely used in understanding competitive advantage, is discussed with emphasis on the five forces that shape the fate of the firm: traditional competitors, new market entrants, substitute products and services, customers, and suppliers. The chapter concludes by discussing how product or service quality can differentiate a firm and produce a competitive advantage. Quality can be judged by both producers and consumers, the former using such standards as benchmarking as a means of measurement.
Information systems can be utilized to achieve competitive advantage. In recent times, funds have been allocated to IT in order to increase efficiency. Information systems aid companies in competing with other competitors by maintaining low costs, differentiating products or services, focusing on market niche, strengthening ties with customers and suppliers, and increasing market entry high competition. These competitions are on a global scale and are not just within the industry. There are also strategies in competing in the global business such as the DOMESTIC EXPORTER strategy and the MULTINATIONAL strategy. These strategies integrate product quality and design in order to differentiate from other products. This allow firms to create profit by attracting customers. Technology is not enough to be competitive and organizations need to be redesigned by a process called BUSINESS PROCESS RE-ENGINEERING.
Using Information Systems to achieve competitive advantage can be described by Porter's competitive forces model. This model "provides a general view of the firm, its competitors, and the firm's environment". In this model five competitive forces decide about the firm's future. Traditional Competitors are companies which produce similar products and services within the market. Firms compete to attract consumers and make sure that they have the strategy and resources to keep their customers satisfied. New Market Entrants are companies that are entering the business industry. However, every firm have a different way of entering the market. The way a computer firm enters a market is different from how a pizza business introduces itself into a market. They can have high or low barriers of entry depending on how high are the capital costs. In just about every industry there will be Substitute Products that can be bought. Firms make sure that they can make quality products with minimum cost of resources. A company also has to put great emphasis on their relationship with suppliers and customers because this is what their business revolves around. A firm makes sure that they have different choices of suppliers so as to regulate and receive raw materials on time in order to meet customers needs. This is also a strategy which is used to attract and keep customers.
Businesses attains it's competitive advantage with the great help of informations systems. The competitive forces, which assist in competitive advantage, include traditional competitors, new market entrant, subsitute products, customers, and suppliers. Also, the methods that businesses utilize in order to fight against these competitive forces are vital and important. The internet also influences competitive advantage greatly. With this help and the help of informations systems, businesses compete on a global scale, with different business models. Furthermore, a business can compete on quality, design and business process.
Having information systems in today's society helps businesses stay more connected with the world, and most importantly its customers. Information systems help connect businesses with its customers by relaying information quickly back and forth. This fast transmission, for example, helps suppliers know more rapidly what to supply and the demand for their supply. Knowing the demand for the supply not only creates efficiency in the business, but also make customers happy. This efficiency created by information systems helps suppliers with its overall success by having high revenues.
This model explains how the competitiveness of a firm is affected by new market entrants, substitute products and services, customers, and suppliers. The value chain model helps firms decide what information systems adds are of value to the firm. These decisions are applied to two activities called primary activities and support activities. A value web is another model that is made up of information systems to help a firm become more efficient with business partners. In addition, this chapter explains how a business gains an advantage by using information systems to smoothly run synergies, network-based strategies, and core competences. It mentions how the introduction of the internet helped companies improve quality and compete on a global scale. In this chapter, the reader understands why a firm may use BPR (business process re-engineering) to make processes more efficient.
Porter's competitive forces model helps companies determine what they should do to be more productive by comparing what their competitors are doing. It also brings the companies costs down and makes them more efficient as a business by using Information Systems. Value chain models and value web models are also introduced in this chapter which show where a company can be most efficient. When businesses redesign their practices they are going to be more efficient in their technology department.
Microsoft Access is one software that relates databases to one another, creating relationships, allowing businesses to use applications more efficiently. Also, Microsoft Access is preferred to be used over Microsoft Excel, because it allows to create relations as mentioned above and work with larger amounts of data.
This section states information about how a firms pursuing a global strategy benefit from economies of scale and resource cost reduction. There are various examples of how a product that has a U.S. label could have probably been designed in California and stitched together Hong Kong using materials from China or India. The possible purpose of this process is to reduce wage cost. This section also describes how the global internet, along with other IT systems, has put manufacturing firms in almost instant contact with their supplier.
THE INTERNET AND GLOBALIZATION
- Until the 1990s, companies like: General Electric, General Motors, Toyota, and IBM; dominated the global competition.
- Today, the global internet and internal information systems, put manufacturing firms in nearly instant contact with their suppliers.
- With the Internet it is possible to move very large computer files with hundreds of graphics and designs across the globe in seconds.
- Because of the Internet and IT systems, it is possible for medium-sized, "micro-multinational" firms to also enter the global competition.
- Information technology and the Internet provide efficiency and almost instant communication to
GLOBAL BUSINESS AND SYSTEM STRATEGIES
The concept of competition on a global scale is mentioned with regard to the recent global business strategies that companies practice including; multinational (heavy centralization of co. activities in home country), transnational(no national headquarters, many regional; global perspective), and domestic exporting(activities centralized in home country of origin); franchiser(everything is produced in the home country). When an organization is centralized it is established in the home country; decentralized being the opposite of this.
This section in the chapter focuses on companies competing on business processes. These days, technology in itself is not sufficient to make an organization competitive and quality-oriented. In order to take advantage of information technology, businesses may have to undergo a radical rethinking and redesigning of its business processes known as Business Process Re-engineering. Some basic questions a business must ask in order to re-engineer successfully are: Why do we do what we do? and Why do we do it the way we do? In order to speed up the process of handling documents, businesses should implement Workflow Management – streamlining business procedures to efficiently move documents. The steps to be followed to achieve effective re-engineering are most importantly, to identify what business processes need improvement. Resources such as time and cost should not be spent on business processes that have little impact on overall business profits.
Section five in chapter three talks about Competing on business processes. This means that businesses have to continually change and take advantage of technology. These changes can be very minor but in some organizations the whole business processes require change. Businesses have to understand the business model so they can make changes in the right places. If a business fails to understand the business model and spends time and money changing a processes that has little impact on overall performance, they become vulnerable to competitors who may have discovered the right business model. Managers need to determine what business processes are the most important when applying new information technology.
What is Quality?
Quality is defined differently from the consumer and producer perspective. It is becoming more about satisfying the customers' needs and moving away from what producers believe is good quality. Customers want to buy things that are worth the money. Total quality management is becoming a common concept in companies. TQM makes quality the responsibility of all people and functions within an organization. TQM would only be effective if everyone takes an active role of improving quality. Companies with good quality are able to charge higher prices than other companies because people are willing to pay more for goods that have high standards. From the customer's point of view, the quality of the physical product matters. From the producer's point of view, specifications matter. To make sure that customers are satisfied with the products they buy, companies have adopted the concept of total quality management (TQM). TQM basically means that everyone involved in creating the product puts in all their effort to make sure the product is at its best state. It involves first realizing who the stakeholders are. To make sure that a product is as perfect as it can get, many companies have introduced a measurement of quality called six sigma. Six sigma means that there are only 3.4 defects out of every million products the company creates. This is hard to achieve but this goal improves quality and lowers costs of production. Another way to improve quality is by having shorter cycle times. If there are fewer steps in creating the product, there is a less of a chance that a mistake will occur.
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