The Generic Strategies of Cost Leadership, Differentiation and Niche and IT.

17 Nov

In this blog I will examine how and if the traditional generic strategies of cost leadership, differentiation and niche hold true for new IT and information systems. As mentioned by thestrategicblogger (https://sopinion8ed.wordpress.com/2012/11/16/1210/) new frameworks may be developed I think it is interesting to take a step back and have a look at these generic strategies as most business strategies will have some basis in one of the three. It is also because of this reason that it is important to examine IT’s relationship with these generic strategies.

Traditionally these three generic strategies have been used to successfully develop and implement a business strategy for a company. I will examine if ,and how, IT can affect these generic strategies. IT now makes up such a vital component of an organisation such as to the extent that a lack of the required IT responsiveness may give that company a competitive disadvantage (Smaczny, 2001).  It is important not only to have the correct technology but also the correct business strategy as I previously discussed (https://sopinion8ed.wordpress.com/2012/10/27/good-technology-bad-business-model/) The fact that a system is designed to last for years means that it comes within the realm of strategic planning even if its function is more day to day.

IT and generic strategies- Cost Leadership, Differentiation and Niche Strategies.

I will now examine if the generic strategies of cost leadership, differentiation and niche still hold for IT. Arafat 2007 holds that IT supports these generic strategies. It is shown that IT can help to have cost leadership by increasing the efficiencies of processes such as on production lines or JIT systems to reduce inventory. A company will be more easily able to achieve economies of scale and to speed up the production process and while also decreasing the production cost with automation. A company could also introduce an Electronic Data Interchange (EDI) system which would enhance the information flow, reduce inventory costs such as has been successfully achieved in Walmart. However it is important to keep in mind that this does require a high initial capital input. This type of strategy may be very important to companies due to the economic challenges facing companies and the business-IS strategic alignment as I pointed out in my last blog post (https://sopinion8ed.wordpress.com/2012/11/11/economic-challenges-facing-strategic-alignment/).

For differentiation IT is helping to create glocalization which allows for mass differentiation. This helps to eliminate some of the traditional costs associated with differentiation. The example of Lego who successfully created mass differentiation by allowing people to create their own sets online each to their own individual taste without bearing the cost usually associated with differentiated products. Often IT also helps to create a higher quality “experience” for customers for example Lego allowing customer to create their own virtual world. This builds their customer relations and helps to create customer loyalty.

Auction sites such as E-Bay also allow for a niche strategy. It is a global site open to people from all over the globe ensuring access to usual products. The increased use of analytics allows companies to build up substantial amounts of information about customers and their purchasing patterns and tendencies. An example of this could be a Tesco clubcard for a customer with an unusual allergy who would be purchasing niche food products. IT can be used to raise entry barriers to increasing customer switching costs creating an even higher barrier around niche products. An example may be a software product for a specific industry and the increased cost of switching because customers will get used to using a specific system and have developed processes around it. (Porter and Millar, 1985).

In this blog I have found that the generic strategies of cost leadership, differentiation and niche products can be used successfully in combination with IT. This is important as most companies will use some variation of one of these three strategies. In order for a company to achieve the required fit as necessary which was mentioned in my previous post (https://sopinion8ed.wordpress.com/2012/10/17/an-introduction-to-business-is-alignment/) it is necessary that IT can successfully be used in combination with one or a combination of these three generic strategies- cost leadership, differentiation and niche. This is important as I previously suggested that the business-IS strategic alignment is still a challenge for organisations (https://sopinion8ed.wordpress.com/2012/11/04/is-is-strategic-alignment-still-important-to-organisations-or-passe/).

Source:

http://edissertations.nottingham.ac.uk/958/1/07MScLixmaa.pdf

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One Response to “The Generic Strategies of Cost Leadership, Differentiation and Niche and IT.”

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  1. Recap on the Business IS Strategic Alignment. « So Opinionated … - November 26, 2012

    […] issue is affected by the traditional strategies of cost leadership, differentiation and niche (https://sopinion8ed.wordpress.com/2012/11/17/the-generic-strategies-of-cost-leadership-differentiatio…). As I felt it was still a relevant issue I then laid out possible ways to achieve this strategic […]

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