Information Systems: Explaining Competitive Advantages

8 Nov

Progressing from and building on 111222787jd’s blog as well as my own case study of Banco Popular de Puerto Rico, I would like to discuss the term Competitive Advantage and its specific meaning with regard to Information Systems. We have seen the term on a few accessions throughout this blog without it being explained sufficiently. A substantial definition from Cole Ehmke is that, “A competitive advantage is an advantage gained over competitors by offering customers greater value, either through lower prices or by providing additional benefits and service that justify similar, or possibly higher, prices.” Ehmke

Do Information Systems give an organisation a competitive advantage over its competitors? This question has been debated in Erik Brynjolfsson’s piece The Productivity Paradox (amongst the huge body of literature that followed) which gave empirical evidence that suggested that I.S did not give a good Return on Investment (ROI). From my own opinion, productivity could not measure intangibles such as the value the organisation creates for its customers and hence giving them an edge over its competitors.

Another understanding for competitive advantage is “When a firm sustains profits that exceed the average for its industry, the firm is said to possess a competitive advantage over its rivals. The goal of much of business strategy is to achieve a sustainable competitive advantage” (Porter, 1985)

Porter went on to define 3 basic elements that made up Competitive Advantage, namely;

  1. Cost Leadership – selling a product cheaper than its competitors whilst maintaining parity in quality.
  2. Differentiation – being the best performer in its industry in different ways other than cost – namely, uniqueness
  3. Focus  – focus on narrow or broad usage of the above terms. Exploit rivals that are under-performing using cost leadership or differentiation through niche utilisation of competitive advantage.

Porter

Competitive advantage that can be sustained is imperative for an organisation. Information systems can and have had a huge effect on helping a company gain a competitive advantage as we have seen numerous examples throughout this blog. These systems in turn help create value and give the organisation an ‘edge’ over its competitors in ways that sometimes cannot be measured using standard metrics but by using KPI’s (Key Performance Indicators) and appreciating intangible benefits. Information systems have been instrumental in helping organisations sustain a competitive advantage in recent decades and continue to do so.

Please leave a comment if you have any questions.

8 Responses to “Information Systems: Explaining Competitive Advantages”

  1. ismisetusa at 1:19 pm #

    Do you believe that Information systems may sometimes be viewed as an unnecessary expenditure similar to recent debates in class concerning IT. Or has IS proven its worth over recent years?

    • jamesdaly1990 at 12:46 pm #

      Hi ismisetuse,

      Thanks for your comment! Personally, I believe that Information Systems can be indeed “viewed as an unnecessary expenditure” in certain situations and contexts. The 4 Papers covered in class give us a clear understanding into the complexity of implementing an Information system. There’s no easy answer to the question but taking into account Davenport, Brynjolfsson, Carr and the resulting debates, investment into IT does not just mean improved ROI or increased productivity but can be utilised as a tool to engage employees and customers more efficiently.

      Information Systems have proven their worth to many business organisations and employees but are not without their vast costs (as well as vendors telling organisations to “Buy this technology and all your problems will be solved.”) This has allowed over-investment and over-expectations from the implementation of I.S. to occur frequently.

      I’d be in the wrong course if I told you Information Systems negatively affect Business Value and Performance but as xman27 discussed in his blog they were instrumental in the recent U.S debate. One cannot use the term unnecessary expenditure here but rather a very necessary expenditure!

      Thanks ismisetusa.

  2. agblogail at 2:51 pm #

    In your paragraph referring to The Productivity Paradox, you ask the question, “Do Information Systems give an organisation a competitive advantage over its competitors?”, and claim that this has been discussed by the Author. However I feel Brynjolfsson’s main concern was not competitive advantage, that he was more concerned with the impact of IT on productivity. Also a good ROI, as you believe is hard to measure, does not mean that you will have competitive advantage. Even if there are several intangible benefits this does not guarantee competitive advantage.

    You also state, “Information systems can and have had a huge effect on helping a company gain a competitive advantage as we have seen numerous examples throughout this blog”, however the only example I see is the case study that you have done on Banco Popular de Puerto Rico. I see no other example of how Is has helped a firm gain competitive advantage.

    • jamesdaly1990 at 11:30 am #

      Hi agblogail,

      The definition I used for Competitive Advantage was, “When a firm sustains profits that exceed the average for its industry, the firm is said to possess a competitive advantage over its rivals”. Brynjolfsson’s main concern was the seemingly indifferent or negative impact of IT on productivity which is directly related to competitive advantage – a firm will invest in IT to gain a sustainable competitive advantage over its competitors. To the untrained eye, one may not be able to see the link between productivity and competitive advantage. However, I agree wiyh you, Brynjolfsson does not explicitly talk about competitve advantage, so i commend you on this observation.

      You say that “several intangible benefits …does not guarantee competitive advantage”. I agree with you, it certainly does not; but if you re-read my comment I believe intangibles are vital in creating value to the customer which in turn is necessary for competitive advantage. Michael Porter says that “Competitive advantage grows fundamentally from the value a firm is able to create” (1985).

      As regards your last statement, this was a typo on my part – When I said blog I meant the Category of Information Systems blogs or thread or whatever the name of the collection of blogs regarding the question “What is an Information System?” can be called.

      Thanks for your interest.

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  4. jmagnone at 12:48 am #

    I am trying to make a presentation describing for Porter’s Competitive Advantage. Currently, this image in the post reflect the Porter’s Generic Strategies but I also found other variants of this model, for example using different representations or even adding more information to the quadrants (like an oval shape in the center of the slide that is used to highlight the “Best Cost” option). Do you know why there are more than one version of this model of Porter?

    Here is one of the PowerPoint templates we found that is pretty close to what we needed for the presentation: http://slidemodel.com/templates/porters-generic-strategy-powerpoint-template/

    Regards

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  6. Subir Kumar Lahiri at 10:17 am #

    Very lucid and informative, indeed.

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