Information Systems: Explaining Competitive Advantages

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.