When can an information system deliver (sustained) competitive advantage

13 Nov

It has been made evident by myself and fellow bloggers such as Xman27 that information systems are highly important to an organisation. Agblogail has pointed out the many advantages information systems being to an organisation but in his most recent blog he has also reminded us that information systems is not all about success. However one of the main advantages that an information system can bring to an organisation is competitive advantage.

Nevertheless the question now arises as to when exactly does information systems deliver sustained competitive advantage?

An information system that can help an organisation achieve sustained competitive strategy is a strategic information system. The term strategic information systems is coined to Charles Wiseman and can be defined as “a system that helps companies change or otherwise alter their business strategy and/or structure. It is typically utilized to streamline and quicken the reaction time to environmental changes and aid it in achieving a competitive advantage”.(http://it.toolbox.com/wiki/index.php/Strategic_Information_System). In their book Management Information Systems: New Approaches to organisation and technology,  Laudon and Laudon 1998  argue that “Strategic information systems change the goals, business processes, products, services or environmental relationships of organizations to help them gain an edge over competitors.” (pg49) In turn they outline three ways in which information systems create sustainable competitive advantage for an organisation.

1)      Increase customer switching costs: Switching costs refer to the costs that a customer would incur if they were to switch to a competitor’s product or service. Oz (Management Information systems 4th ed (2004) notes that switching costs can either be “explicit (such as charges the seller explicitly levies on a customer for switching) or implicit (such as the indirect costs in time and money of adjusting to a new product that does the same job as the old).p44. By increasing these costs they argue that you will lock-in your current customers.

2)      Raise entry barriers to new entrants: An organisation can raise the barriers to entry for new entrants in various ways. One is by obtaining legal protection for a product that they have come up with. For example Microsoft have gained huge competitive advantage against competitors by patenting and copyrighting software they have developed. Laudon and Laudon (1998) suggest that a firm could create an information system that is indispensable to an industry and thus charging a high initial cost. These two methods are examples of when an information systems delivers sustained competitive advantage to an organisation.

3)      Change the basis of competition: Lastly Laudon and Laudon (1998) recommend that organisations should “utilize IS to change the basis of competition from price to something else. Examples include, in-stock status, speed of order fulfillment, and added information with the product. This allows you to sell on a more profitable basis.” (http://www.kulzick.com/strinfo1.htm)

These are just some examples of when information systems can deliver sustained competitive advantage to an organisation. Does anyone have any others?

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