Article: How Information Gives You Competitive Advantage

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ArticleHow Information Gives You Competitive
Advantage

• Group 3
• Antje Lemblke
• Aaron Mighty
• Sonmin Park
• ISM 6367
• 6/10/03

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Introduction

• Historically, the information technology has been
  treated as a support service and delegated to EDP
  departments
• Now, however, every company understands the broad
  effect and implications of the new technology and
  how it can create substantial and sustainable
  competitive advantage.

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Outlines

• How information gives you competitive advantage
• Strategic significance
• Transforming the value chain
• Transforming the product
• Direction pace of change
• Changing the nature of competition
• Changing Industry structure
• Creating competitive advantage
• Spawning new businesses.
• Five steps to help managers assess the impact of
  the information revolution on their own
  companies.

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. Information creates a competitive advantage

• The information revolution is sweeping the
  economy.
• Costs of obtaining, processing, and transmitting
  information are changing the way we do business.
• Management growingly aware that information
  technology is no longer the exclusive territory
  of EDP or IS departments.
• The transition to utilize information effectively
  is difficult and slow.
• Information technology is more than just
  computers.
• Data recognition equipment, communication
  technologies, factory automation, and other
  hardware and services are involved.

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Information creates a competitive advantage

• The information revolution is affected by three
  vital ways
• Changes industry structure altering the rules of
  competition.
• Gives companies new ways to outperform their
  rivals.
• Creates new businesses within a companys
  existing operations.
• This technology is transforming the nature of
  products, processes, companies, industries, and
  even competition itself.

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Strategic significance of information

• The role of information technology in competition
  is the value chain.
• The value chain is divided into two value
  activities
• Technologically activities
• Economically activities
• The value a company creates is measured by the
  amount that buyers are willing to pay for a
  product or service.
• To gain competitive advantage a company must
• Perform these activities at a lower cost
• Perform them in a way that leads to
  differentiation and a premium price.

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Strategic significance of information

• A companys value activity falls into nine
  generic categories
• Primary activities involve the physical creation
  of the product, marketing and delivery to the
  buyer, support and servicing after the sale.
• Support activities provide the inputs and
  infrastructure that allows the primary activities
  to take place.
• A companys value chain is a system of
  interdependent activities, which are connected by
  linkages.
• Linkages require activities to be coordinated.
• Management of linkages is a powerful source of
  competitive advantage.

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Strategic significance of information

• A companys value system includes the value
  chain of suppliers, who provide inputs to the
  companys value chain.
• Competitive advantage in either cost or
  differentiation is also a function of a companys
  value chain.
• A companys ability to differentiate itself
  reflects the contribution of each value activity
  towards fulfillment of buyer needs.
• Companies, in search of competitive advantage,
  differ in competitive scope.
• Competitive scope has four key dimensions
• Segment, Vertical, Geographic Industry scope

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Transforming the Value Chain

• Information technology is permeating the value
  chain, transforming the way value activities are
  performed.
• Every value activity has both a physical and an
  information-processing component.
• The physical component includes all the physical
  tasks required to perform the activity.
• The information-processing component encompasses
  the steps required to capture, manipulate, and
  channel the data necessary to perform the
  activity.
• Every value activity creates and uses information
  of some kind.
• An activitys physical and information-processing
  components may be simple or quite complex.

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Transforming the Value Chain

• Information technology is advancing faster than
  technologies for physical processing.
• During the Industrial Revolution, companies
  achieved competitive advantage by substituting
  machines for human labor.
• The cost of information storage, manipulation,
  and transmittal are falling rapidly.
• The cost of computer power relative to the cost
  of manual information processing is at least
  8,000 times less expensive than the cost 30 years
  ago.

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IT is Transforming the Value Chain

• Initially focused on clerical functions
• Today IT is used to
• Improve production processes
• Collect, analyze and control process variables
• Improve linkages in the value system
• Enhance competitive scope
• ITs dark side
• Information overload
• Decelerate Decision Making

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IT is Transforming the Product

• Initially physical side of product more important
  than informational side
• How IT influenced a product
• Possible to distribute far more information with
  the physical product
• Product can consist solely on information, no
  physical product
• Product has built-in IT in its normal functioning
  
• No mature business, but mature ways to do
  business

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IT Direction and Pace of Change

• Importance of IT depends on
• Information content of product
• Information intensity of value chain
• Examples for different importance
• Cement industry
• Oil refinery
• Banking

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IT Changes the Nature of Competition

• Changes industry structure e.g.
• Increases buying power
• Increases barrier of new entry
• Entry barriers are falling
• Raise switching costs

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IT Changes the Nature of Competition

• Creating Competitive Advantage
• Low cost
• - The information technology can alter a
  companys costs in any part of the value chain.
• Enhancing differentiation
• -The new information technology makes it
  possible to customize products and affects a
  companys ability to differentiate itself.

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IT Changes the Nature of Competition

• Creating Competitive Advantage
• Changing competitive scope
• - Information technology can alter the
  relationship between competitive scope and
  competitive advantages.
• - 4 key dimensions
• Geographic scope
• Segment scope
• Vertical scope
• Industry scope

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IT Changes the Nature of Competition

• Spawning new business
• The information technology makes new business
  technologically feasible.
• The information technology creates derived demand
  for new products.
• The information technology creates new business
  within old ones.

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Competing in the age of information

• Five steps to take advantages of opportunities
  from the information revolution.
• Assess information intensity
• Determine the role of information technology in
  industry structure.
• Identify and rank the ways in which information
  technology might create competitive advantage.
• Investigate how information technology might new
  spawn businesses.
• Develop a plan for taking advantage of
  information technology.