IS 501

2021-2022 Spring
Assignment # 1
1. Summary of the article “How Information Gives You Competitive Advantage”:

In the article, Porter and Millar states that;

Strategic significance of the information technologies is observed in all processes in the creation of
the products, and in the products. This significance can be highlighted by the concept of value
activities of a company which has nine generic categories (primary activities-inbound logistics,
operations, outbound logistics, marketing and sales, services; support activities-firm infrastructure,
human resource management, technology development, procurement). To gain competitive
advantage, a company must either perform value activities at a lower cost or perform them in a way
that leads to differentiation and a premium price (more value).

Interdependent value activities are connected by linkages. Linkages often create trade-offs in
performing different activities that should be optimized and require activities to be coordinated.
Linkages not only connect value activities inside a company but also create interdependencies
between its suppliers and channels. A company can create competitive advantage by optimizing or
coordinating linkages. Companies often differ in competitive scope to get competitive advantage.
Competitive scope has four key dimensions: segment scope, vertical scope, geographic scope, and
industry scope.

Information technologies transform the conduction of value activities, the nature of the linkages, and
it affects competitive scope and reshapes the satisfaction criteria of the buyers. Moreover, there is
an unmistakable trend toward expanding the information content in products rather compared to
physical component. Due to the falling cost and growing capacity of the technology, many industries
seem to be moving toward a higher information content in both product and process. It should be
emphasized that technology will continue to improve rapidly. These basic effects underline the
information technology as it is different from the many other technologies businesses use.

Dramatic reductions in the cost of obtaining, processing, and transmitting information change the
businesses and the rules of competition by changing industry structure, providing competitive
advantage, and giving opportunities of new businesses.

The structure of an industry is constituted of five competitive forces: the power of buyers, the power
of suppliers, the threat of new entrants, the threat of substitute products, and the rivalry among
existing competitors. Information technology can alter each of these forces by providing easy
evaluation and connection to buyers/suppliers, raising & lowering barriers to new entries, providing
automation & flexibility, providing flexible computer-aided design and manufacturing systems, and
strengthening the bargaining relationships. For every business, information technology has a
powerful effect on competitive advantage since; it can lower the costs, alter the cost drivers,
enhance differentiation, change competitive scope, create interrelationships among separate
industries. The information technology gives opportunities to completely new industries in three
distinct ways; technologically feasible new businesses, new businesses of derived demand for new
products, new businesses within old ones.

Senior executives can follow following steps to take advantage of opportunities that the information
revolution has created.
 1. Assess information intensity value activities and products.
2. Determine the role of information technology in industry structure.
3. Identify and rank the ways in which information technology might create competitive
advantage.
4. Investigate how information technology might spawn new businesses.
5. Develop a roadmap to take advantage of information technology.

2. Six strategic business objectives of IS are:

1. Operational excellence
2. New products, services, and business models
3. Customer and supplier intimacy
4. Improved decision making
5. Competitive advantage
6. Survival

In the article, all these strategic business objectives are addressed either explicitly or implicitly. For
the first objective, it is stated in the article that “Information technology is permeating the value
chain at every point, transforming the way value activities are performed and the nature of the
linkages among them” pointing the operational excellence. Then the studies of Department of
Defense showing the reduction of the error rate in data through bar car, accumulated experience
database of General Electric, improvement of the diesel engines of Sulzer-Broth, drill-bit angle
measurement of Schlumberger, streamlined order processing of McKesson are mentioned as
examples to support the statement.

For the second objective, the most prominent examples are given in the section of “Spawning New
Businesses”. New facsimile services of Zapmail, Merrill Lynch’s Cash Management Account, Western
Union’s EasyLink service, credit-authorization and transaction-processing services of Sears, data-
communications expertise of A.O. Smith are examples given in this section.

Third objective is firstly addressed in the section of “Strategic Significance” by the statement “The
company, suppliers, and channels can all benefit through better recognition and exploitation of such
linkages.” Delivery of chocolate in liquid form for the candy manufacturer and just-in-time deliveries
by the suppliers are two examples supporting the statement. However, the sounder examples given
in the sub-section “Changing industry structure”. In the paragraph starting with the sentence
“Systems that connect buyers and suppliers are spreading.”, examples of manufacturing data share
by Xerox and the partnership between Westinghouse Electric Supply Company & American Hospital
Supply to speed up order entry are given directly addressing the third objective.

Fourth objective is not addressed explicitly in the article. It is embedded in the examples of the
notion “Buyer power”. Shelternet which provides the information(available mortgage packages for
the buyer and qualification of the buyer for financing) to the brokers to improve both their and the
buyer position can be seen as an example serving to improved decision making objective. The
statement of “Automated bills for materials and vendor quotation files make it easier for buyers to
evaluate sources of materials and make-or-buy decisions” can also be considered as an example to
the fourth objective.

Fifth objective is the main theme of the article and almost every example given in the article serves
to this objective. Entire section of “Creating competitive advantage” and examples given in this
section directly address this objective.

Sixth objective is not addressed explicitly in the article. Only the effect of industry-level changes are
addressed by the examples of automated teller machines and transaction processing of Citibank,
computerized reservations system of American Airlines, decentralized printing plants of USA Today.
In the “Competing in the Age of Information” section of article it is also stated that “Companies have
permanently altered the bases of competition in their favor in many industries through aggressive
investments in information technology and have forced other companies to follow.” pointing the
survival objective.

3. Although the information intensity in value activities and products of the businesses has
increasing trend, the location of a firm in the information intensity matrix depends on primarily
the industry it belongs. For example, firms serving in the fields like insurance,
telecommunication… etc. have high information-technology content in both product and
processes. However, a firm producing commodities like cement or steel mill have low
information technology. Therefore, I would locate my firm primarily according to the industry it
serves. Then I would invest in information technologies depending on the competitive scope and
strategic objectives of my firm which would probably cause a position shifting in information
intensity matrix.
4. I think the authors’ ideas are still accurate despite the long-term that has passed since the article
was written. In the article, they have an evaluation stated as;
“The cost of hardware will continue to drop, and managers will continue to distribute the
technology among even the lower levels of the company. The cost of developing software, now a
key constraint, will fall as more packages become available that are easily tailored to customers’
circumstances. The applications of information technology that companies are using today are
only a beginning.”
which implies they understood the strategic significance of IS well. The strategic value of IS even
increased since the article was written, because the amount of the available data that must be
handled (not only to provide competitive advantage, but also accomplish the regular services)
increased exponentially. For example, the global passenger air traffic has increased almost five
times since 80s (if we do not count the drastic decrease during Covid-19). Together with the
commoditization of the drones and UAVs, the need for complex air surveillance and traffic
management systems -which cannot be accomplished without IS- increased drastically. The need
mentioned is just a little example directly related to survival objective of IS. When the increasing
data and digitalization in different industries are considered, it will be seen that whole strategic
objectives of IS have critical importance.