Information Technologies can help a business in so many ways to achieve competitive advantage, such as, cutting cost, improve products and services, promote growth, incerase customer satisfaction etc. The first purpose of this review is to identify how IT assists in overcoming barriers to entry to competition in most industries, specially tech-centric intustries. The second purpose of this review is to critically analyse how IT helps business to achieve competitive advantage, offers solutions to business challenges and raise barriers to entry in the market. IT Assists Firms to Enter in The Competition
Someone can argue that there are almost no barrier for tech-centric business and this argument is particularly true for the Internet based business, not other business such as Bank. Any rival can put up a competing Web site overnight. A rival can enter in the market depending on IT offering procucts and services that are allready available in the market. Relying only on IT or Techonology can be very dangerous (Gallaugher 2010). There are millions of Internet based firms that started business relying only on IT and failed to sustain in the Industry. For example Fiveminfotech.
com entered in software industry in Bangaldesh based on few software developers and analysts.
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Only IT Does Not Ensure Competitive Advantage To understand how to achieve sustainable competitive advantage, it’s useful to start with Five Forces concepts defined by Michael Porter (Gallaugher 2010). Porter stressed on strategic positioning rather than operational effectiveness. Operational effectivenessoperational effectivenessPerforming the same tasks better than rivals perform them. refers to performing the same tasks better than rivals perform them. The danger in operational effectiveness is “sameness”.
Since technology can be easily copied, that’s why operational effectiveness is quite risky for those firms that rely on technology for competitiveness. These firms watch a pioneer’s efforts, learn from their successes and missteps, then enter the market quickly with a comparable or superior product at a lower cost. It is rarely a competitive advantage when technology can be matched so quickly. Operational effectiveness is critical to firms, but not sufficient enough to yield sustainable advantage (Gallaugher 2010). Strategic Positioning
On the contrary, strategic positioning is very critical to firm to create sustainable advantage and unique approaches. Strategic positioning can be defined as performing different activities from those of rivals or the same activities in a different way (Gallaugher 2010). IT is critical to the firm’s success and strategic positioning has to be tech-enabled to deliver success. The firm has to build up a set of strategic assets that not only address specific needs of a market but should be extremely difficult for any upstart to compete against (Gallaugher 2010).
Therefore, investment in IT can raise barriers to entry for other firms in the competition (O’Brian & Marakas 2009). A firm can recognize whether it’s strategic differences are special enough to yield sustainable competitive advantage. The resource-based view of competitive advantage can help. According to this view a firm must control a set of exploitable resources that have four critical characteristics: (1) Valuable, (2) Rare, (3) Difficult to imitate, and (4) Difficult to substitute (Gallaugher 2010).
Resourse-based strategy can help a firm to avoid entering market carelessly simply because growth is spotted. The telecommunications industry learned this lesson in a very hard and painful way. Telecommunications industry used long-haul fiber-optic cables to transfer data over the internet. However, to meet growing demand some telecom firms began digging up the ground and laying webs of fiberglass. But problems arised when rivals started to doing exact same thing and used another technology called dense wave division multiplexing (DWDM) enabled existing fiber to carry more transmissions than ever before.
As a result, these new assets weren’t rare and each day they seemed to be less valuable. True sustainable advantage comes from assets and business models that are simultaneously valuable, rare, difficult to imitate, and for which there are no substitutes (Gallaugher 2010). Although technology alone cant achieve sustainable compatitive advantage, but a firm can develop some strategies to encounter the threats of five forces. O’Brien et al (2009) pointed out five strategies, such as, Cost Leadership, Differentiation, Innovation, Growth and Alliances strategies.
These strategies describe how IT can be used efficiently in a firm to gain competitive advantage. For example, Dell have used cost leadership strategy to build online ordering system and established itself as lowest-cost producer of PC in the market (O’Brian & Marakas 2009). Apart from above five strategies a firm can use some other strategies and can invest in IT to lock in customers and suppliers, lock out competitors, create switching costs and raise barriers to entry in the market (O’Brian & Marakas 2009).
IT can also be used in a firm to build a customer-focused business, reengineer business process, create a virtual company, build a knowledge-creating company and become an agile company (O’Brian & Marakas 2009). Conclusion Although a firm can enter in the market quickly with the help of IT, but it will not sustain in the market without ‘right’ model or competitive strategy. If a firm is not armed with right competitive strategy to counter the threats of five forces , then “IT doesn’t matter” (Carr 2003).
Carr, N.(2003),”IT Doesn’t Matter,” Harvard Business Review 81, no. 5. Gallaugher, J. (2010), Information Systems: A Manger’s Guide To Harnessing Technology, Flatworld Knowledge. O’Brien, J. A. , & Marakas, G. M. (2009), Management Information Systems (9th ed. ). New York: McGraw-Hill Irwin. Part C – Case Study Read Real World Case 4: “Best Buy, Medstar Health and Unifi: The Challenges and Benefits of Wireless mobile applications” from pages 258-259 of the O’Brien & Marakas text and answer the three case study questions. It is important that you draw from the literature in your discussion.