BIS can be also used to counter the five competitive forces of their environment described by Porter (1980). Examples of how this can be achieved are given later . The five forces are:
1. the threat of new entrants;
2. the bargaining power of suppliers;
3. the bargaining power of customers;
4. the threat of substitute products or services;
5. rivalry among existing competitors.
Porter’s work can also be used to identify a number of ways in which BIS can be used to
achieve competitive advantage. These include:
■ improving operational efficiency;
■ raising barriers to entry;
■ locking in customers and suppliers;
■ promoting business innovation;
■ increasing switching costs;
■ leverage.
Figure 2.10 summarises the main ways in which computer-based information systems can
be used to achieve competitive advantage.
Improving operational efficiency
One of the most common ways of using computer-based information systems to achieve competitive advantage is by using them to improve operational efficiency. As an example, consider a typical manufacturing company wishing to adopt a cost leadership strategy. In a primary activity, such as production, an inventory control system might be used to manage stock levels, reducing storage and transportation costs. In addition, support activities, such as management and administration, might achieve higher levels of productivity through the introduction of office automation systems. The organisation might also realise additional benefits from this kind of approach, such as improved customer service.
Barriers to entry
In many industries, organisations have improved operational efficiency by investing heavily in BIS. Often, the systems employed are extremely complex and require ongoing
1. the threat of new entrants;
2. the bargaining power of suppliers;
3. the bargaining power of customers;
4. the threat of substitute products or services;
5. rivalry among existing competitors.
Porter’s work can also be used to identify a number of ways in which BIS can be used to
achieve competitive advantage. These include:
■ improving operational efficiency;
■ raising barriers to entry;
■ locking in customers and suppliers;
■ promoting business innovation;
■ increasing switching costs;
■ leverage.
Figure 2.10 summarises the main ways in which computer-based information systems can
be used to achieve competitive advantage.
Improving operational efficiency
One of the most common ways of using computer-based information systems to achieve competitive advantage is by using them to improve operational efficiency. As an example, consider a typical manufacturing company wishing to adopt a cost leadership strategy. In a primary activity, such as production, an inventory control system might be used to manage stock levels, reducing storage and transportation costs. In addition, support activities, such as management and administration, might achieve higher levels of productivity through the introduction of office automation systems. The organisation might also realise additional benefits from this kind of approach, such as improved customer service.
Barriers to entry
In many industries, organisations have improved operational efficiency by investing heavily in BIS. Often, the systems employed are extremely complex and require ongoing
maintenance and development. This means that newcomers to the industry must be prepared to make a large initial expenditure so that they can acquire the computer-based information systems they need to be able to compete effectively. The level of expenditure needed may be so high that an entry barrier is created that deters or prevents the new competitor from entering the industry. Investing heavily in computer-based information systems may also deter existing competitors, since they too must invest in their information systems in order to maintain or improve their position in the industry. New technologies can decrease barriers to entry. For example, electronic banking removed the requirement for a branch network, leading to the establishment of Internet-only banks, such as Smile. However, entry barriers were so high that most required the backing of a major high-street bank or building society.
Locking in customers and suppliers
Linking an organisation’s computer-based information systems to those of its customers and suppliers can help to strengthen business relationships. As an example, computer-based information systems can be used to provide higher levels of customer service, thereby encouraging clients to remain loyal to the company. Close integration with a supplier’s information systems can result in a number of business benefits, which include:
■ the availability of raw materials or parts is more certain;
■ cost savings can be realised through reduced administration overheads;
■ suppliers are less likely to abandon the business relationship;
■ the organisation can negotiate favourable terms and prices;
■ competitors are excluded from the business relationship.
Locking in customers and suppliers
Linking an organisation’s computer-based information systems to those of its customers and suppliers can help to strengthen business relationships. As an example, computer-based information systems can be used to provide higher levels of customer service, thereby encouraging clients to remain loyal to the company. Close integration with a supplier’s information systems can result in a number of business benefits, which include:
■ the availability of raw materials or parts is more certain;
■ cost savings can be realised through reduced administration overheads;
■ suppliers are less likely to abandon the business relationship;
■ the organisation can negotiate favourable terms and prices;
■ competitors are excluded from the business relationship.
However, it should be noted that achieving high levels of integration can also have some significant disadvantages. Perhaps the single largest disadvantage is that the organisation may come to rely upon a relatively small number of suppliers. This reliance might lead to some suppliers’ taking advantage of the relationship, for example by raising prices. The organisation may also find it difficult to maintain normal operations if the supplier goes out of business or experiences other problems.
Promoting business innovation
Investing in computer-based information systems often helps to stimulate business innovation. Introducing a new process control system, for example, might ultimately result in the development of new product features or new product lines. Organisations that have invested in building effective computer-based information systems are well placed to support business innovation. Such organisations are likely to have established a resource base that can be drawn upon to develop new ideas. On the other hand, an organisation that has failed to invest adequately in its information systems may lack essential resources, such as hardware, software and trained personnel, and be unable to explore new methods.
Increasing switching costs
In general, an organisation that has invested time, money and effort in developing a computer-based information system will be reluctant to bear the switching costs of moving to a new system. In addition to the cost of new hardware and software, a range of other costs can be incurred. These might include costs connected with:
■ converting data for use with the new system;
■ training staff;
■ interruptions to the company’s operations;
■ lost opportunities to gain new business.
Promoting business innovation
Investing in computer-based information systems often helps to stimulate business innovation. Introducing a new process control system, for example, might ultimately result in the development of new product features or new product lines. Organisations that have invested in building effective computer-based information systems are well placed to support business innovation. Such organisations are likely to have established a resource base that can be drawn upon to develop new ideas. On the other hand, an organisation that has failed to invest adequately in its information systems may lack essential resources, such as hardware, software and trained personnel, and be unable to explore new methods.
Increasing switching costs
In general, an organisation that has invested time, money and effort in developing a computer-based information system will be reluctant to bear the switching costs of moving to a new system. In addition to the cost of new hardware and software, a range of other costs can be incurred. These might include costs connected with:
■ converting data for use with the new system;
■ training staff;
■ interruptions to the company’s operations;
■ lost opportunities to gain new business.
When an organisation links its information systems to those of its suppliers or customers, it will often ensure that switching costs are as high as possible. In this way, the supplier or customer is discouraged from switching to a competitor’s system and competitors are excluded from the business relationship.
Leverage
Access to a resource base of this kind can provide a number of other benefits to an organisation as well as innovation. First, the organisation is equipped so that it can take advantage of any opportunities that arise in the business environment. Second, the organisation can begin to develop new products and services by maximising its use of existing resources. An example of leverage is when a travel agent creates a mailing list from its customer database so that it can offer customers new products or services, such as travel insurance or car rental. Finally, the organisation may use its resources to gain competitive advantage through information leadership. Information leadership involves enhancing a product or service with an organisation’s specialised information or expertise. In some cases, organisations achieve information leadership by selling information or expertise in the form of a separate product. A good example might be selling a mailing list created from an organisation’s customer database.
Leverage
Access to a resource base of this kind can provide a number of other benefits to an organisation as well as innovation. First, the organisation is equipped so that it can take advantage of any opportunities that arise in the business environment. Second, the organisation can begin to develop new products and services by maximising its use of existing resources. An example of leverage is when a travel agent creates a mailing list from its customer database so that it can offer customers new products or services, such as travel insurance or car rental. Finally, the organisation may use its resources to gain competitive advantage through information leadership. Information leadership involves enhancing a product or service with an organisation’s specialised information or expertise. In some cases, organisations achieve information leadership by selling information or expertise in the form of a separate product. A good example might be selling a mailing list created from an organisation’s customer database.
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