Technology and Competitive Advantage
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Authors
Authors: Anil Kumar Kartham,
Faculty Associate
ICMR (IBS Center for Management Research).
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Impact of Information Technology on Organizations Contd...
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New technological environment is also characterized by bundling of products and services. Products & services can be different based on the way they are combined. In U.K, in the past, customers went to bank for their savings and day-to-day transactions. They went to building society for their mortgages. They preferred insurance agents when they wanted to buy life & property policies, and financial advisors for investments. This is no longer the case. With the available new technologies, institutions are able to offer bundled services to their customers. These institutions can now address all the above financial needs of their customers through a single account. Bundling of products or services is successful not only because of convenience, but also because of confidence it generates in the minds of customers. Customers buying books at Amazon.com no longer buy just books. There are many customers who purchase toys, clothing, tools, and other items along with books. They do that because they are familiar with the website, and have trust in the quality of products and services it is offering. The above examples demonstrate how important technological environment is in determining the strategies of the firms. |
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IT and its Strategic Value
As information technologies have gained strength in terms of capacities and presence, most of the companies are increasingly seeing them as crucial tools to success. This is evident in their spending on IT. In 1960s, less than 5% of capital expenditure of American companies went towards IT. In early 1980s, the time when PCs were introduced, the spending on information technologies rose to 15 %. Early 1990s saw the spending on IT rise to more than 30%. By 2000, the spending was nearly 50%. Even today, when companies are supposed to be niggardly in their IT spending, businesses all over the world are spending more than $2 trillion a year on IT. Even the shift in attitudes of top managers suggest this. Twenty years back most top managers viewed computers as tools to help low-level employees like secretaries, analysts & technicians. Rarely did they use applications of IT in their strategic thinking. However, today IT is expected to deliver strategic value. Top managers perceive it as a tool to gain competitive advantage.
Today, Chief information officers are part of senior management teams. Organizations have even hired strategy consulting firms to help them leverage IT for differentiation and advantage. The senior executives are led by a simple assumption: increasing potency of IT and its ubiquity have increased its strategic value. But Nicholas Carr (Carr) says in his HBR article, "IT doesn't matter", that IT no longer offers a strategic value. According to him, a resource such as IT is strategic and offers competitive advantage only as long as it is scarce2. Such a resource offers edge over competitors only when they cannot have it. Core functions of IT such as data storage, data processing, and data transport are no longer limited to a few companies. Most of the companies have infrastructure to perform these functions.
2] IT Doesn't Matter, By: Carr, Nicholas G., Harvard Business Review, 00178012, May2003, Vol. 81, Issue 5.