Contribution of information systems to

pursue competitive strategies

How Information Gives You
Competitive Advantage
The information revolution is reshaping the business landscape in three crucial
ways: altering industry structure, providing avenues for competitive advantage,
and giving rise to new businesses. General managers must recognize the strategic
significance of information technology beyond mere computers.
It encompasses various technologies and data management practices.
Understanding these changes is essential for developing strategies to exploit the
technology effectively. This article aims to guide managers in assessing the role
of information technology in their businesses and prioritizing investments to gain
competitive advantage.
 Strategic Significance
•Value activities in a company are divided into nine generic categories.
•Primary activities involve physical product creation, marketing, delivery to buyers, and after-sales support.
•Support activities provide inputs and infrastructure to enable primary activities.
•Each activity utilizes purchased inputs, human resources, and technology.
•Firm infrastructure, including functions like general management and accounting, supports the entire chain.
•Within each category, companies perform discrete activities based on their specific business.
•Services often include installation, repair, adjustment, upgrading, and parts inventory management.
Information System Strategies for
Dealing with Competitive Forces
Porter's competitive forces model
In Porter's competitive forces model, a firm's strategic position and strategies are influenced not
only by rivalry with direct competitors but also by four additional forces within the industry's
environment: new market entrants, substitute products, customers, and suppliers.

Traditional Competitors
All companies operate within the same market as other competitors who are constantly
innovating to improve production efficiency, introducing new products and services, and striving
to retain customers through brand development and the imposition of switching costs.
New Market Entrants
In a competitive market with fluid labor and financial resources, new entrants are continually
joining the fray. Entry barriers vary across industries; while sectors like small retail businesses or
pizza shops have low barriers, industries such as computer chip manufacturing pose significant
challenges due to high capital costs and specialized expertise requirements. New companies
possess certain advantages, including flexibility with equipment, access to younger and
potentially innovative talent, and freedom from outdated brand associations. However, they also
face drawbacks such as reliance on external funding for infrastructure, less experienced staff, and
limited brand awareness.
 Substitute Products and Services
In virtually every industry, there exist alternative options that customers may turn to if prices of a particular
product or service rise. Advancements in technology continually introduce new substitutes.
For instance, ethanol can replace gasoline in cars, vegetable oil can substitute diesel fuel in trucks, and
various sources like wind, solar, coal, and hydro power can replace traditional methods for industrial
electricity generation. Similarly, Internet and wireless telephone services can serve as alternatives to
traditional landline phone services. Additionally, online music platforms that allow music downloads to
devices like iPads or
smartphones have emerged as substitutes for brick-and-mortar CD stores. The availability of substitute
products and services within an industry diminishes a company's ability to dictate pricing and tends to reduce
profit margins.
Customers
The profitability of a company heavily relies on its ability to attract and retain customers, while also
preventing them from patronizing competitors, and charging premium prices. However, the
influence of customers strengthens when they can readily switch to alternative products or services
from competitors, or if they compel businesses to compete solely on price in a transparent market
where product distinctions are minimal and prices are readily accessible, such as in online platforms.
For example, in the online market for used college textbooks, students have significant power as
they can easily access multiple suppliers offering nearly any current college textbook. In such cases,
online customers exert considerable influence over firms specializing in used textbooks.
Suppliers
The influence of suppliers in the market can profoundly affect a company's profits, particularly
when the company cannot adjust prices as swiftly as suppliers can. A company's ability to exert
control over suppliers in terms of pricing, quality, and delivery schedules tends to increase with
the presence of multiple suppliers.
For example, manufacturers of laptop PCs typically have several competing suppliers for essential
components like keyboards, hard drives, and display screens.
Information System Strategies for
Dealing with Competitive Forces
•Companies often employ four generic strategies: cost leadership, product differentiation, focus
on niche markets, and strengthening relationships with customers and suppliers.
•While some companies focus on one strategy, many pursue multiple strategies simultaneously.
•Starbucks, for example, the world's largest specialty coffee retailer, combines offering unique
high-end specialty coffees and beverages with targeted marketing efforts.
•Through targeted marketing, Starbucks tailors its strategies to specific consumer groups based on
factors like age, lifestyle, preferences, and purchasing behaviors.
•This personalized approach helps Starbucks establish deeper connections with customers,
enhancing their sense of appreciation and understanding.
Low-Cost Leadership
Walmart employs an efficient information system to minimize operational costs and offer
competitive prices in the retail industry.
The inventory replenishment system is a key component, ensuring shelves are well stocked while
keeping prices low.
Orders are sent directly to suppliers as soon as purchases are made, facilitated by point-of-sale
terminals recording barcode data and transmitting transactions to a central computer.
This system allows for rapid inventory replenishment and adjustments to meet customer demand.
Suppliers can access Walmart's sales and inventory data through web technology, enhancing
collaboration and efficiency.
Walmart's strategic use of information systems results in lower overhead costs compared to
competitors like Sears.
The continuous replenishment system exemplifies an efficient customer response system, linking
consumer behavior to distribution, production, and supply chains.
 Product Differentiation
Big Tech firms like Google, Facebook, Amazon, and Apple invest heavily in research for new products and services,
ensuring continuous innovation.
Google updated its Google Assistant in 2018 for more natural conversations and integrated it into Google Maps,
enhancing user interaction.
Additionally, Google released a Machine Language Kit for developers, supporting functions like text and face
recognition.
Crayola, a non-tech company, innovates with technology-based products for children, parents, and educators.
Manufacturers and retailers utilize information systems to offer personalized products, like Nike's customized
sneakers through NIKEiD.
Orders for customized products are transmitted via computers to production facilities, demonstrating mass
customization capabilities.
 Focus on Market Niche
Information systems enable companies to focus on narrow target markets by producing and analyzing data for refined
sales and marketing strategies.
Data from various sources such as credit card transactions, demographics, and website interactions are analyzed to
understand customer buying patterns, preferences, and tastes.
Sophisticated software tools analyze large pools of data to identify patterns and infer rules for decision-making,
enabling one-to-one marketing based on individualized preferences.
For example, Hilton Hotels' OnQ system analyzes guest data to determine preferences and profitability, allowing for
personalized privileges such as late checkouts for profitable customers.
Contemporary Customer Relationship Management (CRM) systems feature analytical capabilities for intensive data
analysis, enabling personalized marketing strategies.
Credit card companies use similar strategies to predict profitable cardholders by analyzing vast quantities of data to
construct detailed profiles identifying good or bad credit risks.
Strengthen Customer and Supplier
Intimacy
•Automobile manufacturers like Toyota and Ford use information systems to provide suppliers
with direct access to production schedules, allowing them to decide how and when to ship
supplies to factories, thereby increasing lead time for production.
•Amazon tracks user preferences for book and CD purchases and recommends titles purchased by
others, enhancing customer intimacy.
•Strong linkages with customers and suppliers increase switching costs and foster loyalty to the
firm.