Technology and Competitive Advantage
Article by - Anil Kumar Kartham ,
Faculty Associate ,
ICMR Case Studies and Management Resources.
Does Technology Matter?
Abstract
Top executives of organizations are increasingly looking at IT as a source of
competitive advantage. IT department is becoming an inalienable part of a
business enterprise. Chief information officers are part of top management
team. But, does IT deserve so much attention? Can it actually deliver strategic
value it boasts of? The article discusses the strategic importance of IT.
|
Strategy decisions in organizations
are increasingly getting dependent on technology adoption decisions[1].
The interdependency of strategy and technology can be traced to the Second
World War when globalization & technological development speeded up
massive war effort. War effort needed high levels of hierarchical
organizational design & control mechanisms. After the war, strategy got
integrated with organizational design decisions influenced by the then
dominant industrial technologies. Metaphors influence the way an
organization functions. People leading organizations choose dominant
technologies of their time to coin metaphors for their organizations. They
also ensure that tools are developed to support the metaphors that express
their views. |
|
As the metaphors become popular, they become
self-fulfilling prophecies till the technological paradigm is replaced by a new
technology. Two dominant metaphors emerged since the Second World War. The
First was "strategy as organization." This metaphor was coined to emphasize the
necessity of structuring firms for deployment of resources on a global scale.
The second was "strategy as network." This metaphor motivated firms to deploy
computer systems to manage their complex activities that spanned across the
globe.
Strategy as network
Growth of trade & FDI is reflected well in the expansion of production
networks. In yesteryears, production of many final goods was done at one
location. Later the manufacturing activity was broken down into separate steps.
Each step was conducted at a location that offered lowest cost option. As a
result, significant portion of international trade & FDI included exchange and
production of parts and components, instead of exchange and production of final
consumer goods. Today, globalization of producing individual goods has reached
such a level that it is difficult to identify the nationality of products.
According to a WTO report published in 1998, of the automobiles produced in the
US, US accounts for only 37% of the value added.
Technological progress made in the fields of transport, communications, and
data processing has played a key role in FDI inflows & establishment of
cross-border production networks. Between early 1980s and mid 1990s,
technological improvements led to a 70% decline in sea freight unit costs.
Increased reliance on air shipments, growth of express services (over night &
two-day delivery) greatly facilitated the shipment of components for processing
at different locations. Low-cost of long-distance telephone rates, development
of fax machines, and advent of internet have helped MNCs in coordinating
production at dispersed locations closely.
Impact of information technology on organizations
New information technologies such as broadband networks, mobile communications,
and internet promise to improve businesses and industries. Companies have to
look at what technologies are capable of before adopting strategies. In the
1990s, companies invested lot of resources in deploying new information
technologies. They spent millions of dollars on sophisticated software
packages, tele-conferencing equipment, broadband networks, mobile
communications, and other digital technologies. This was necessary to pace with
the level of technological use by competitors. But now, firms are forced to be
selective about their technologies. They are choosing technologies that are
relevant to businesses, their strategic objectives, and sales & marketing
activities.
Electronic deliverability is one characteristic of new technologies. Some
products have large components that can be delivered electronically. For
example, customers can book reservations online for their air travel. They can
obtain confirmation and tickets through e-mail.
New technological environment can be described in terms of information
intensity as well. All products and services have some information content. But
the amount of information associated with the products keeps changing. A
company that sells cars offers lot of information through product manuals on
operating instructions. On the other hand, a company that sells ice cream
offers no information except the name of the flavor and ingredients. In the
past, information on comparative benefits was limited and difficult to collect.
There were no independent agencies to rely upon. Web is allowing customers and
organizations to collect or offer such information easily. Organizations today
can offer information that is not possible to cover in product manuals.
More>>.
[1]
Instinctive Strategy: Organic Organizations Rule, By: Oliver, Richard
W., Journal of Business Strategy, Sep/Oct2002, Vol. 23, Issue 5.
|
More Classifications...