what advice would you give to a firm that wants to exploit network effects?
The information revolution is sweeping through our economy. No company tin escape its effects. Dramatic reductions in the cost of obtaining, processing, and transmitting information are irresolute the mode we exercise business.
Most general managers know that the revolution is nether way, and few dispute its importance. Every bit more and more than of their fourth dimension and investment majuscule is captivated in information technology and its effects, executives accept a growing awareness that the technology can no longer be the exclusive territory of EDP or IS departments. As they see their rivals use information for competitive advantage, these executives recognize the need to become straight involved in the management of the new engineering science. In the face of rapid change, nevertheless, they don't know how.
This article aims to assistance general managers respond to the challenges of the data revolution. How will advances in it affect competition and the sources of competitive advantage? What strategies should a company pursue to exploit the technology? What are the implications of deportment that competitors may already have taken? Of the many opportunities for investment in information technology, which are the almost urgent?
To respond these questions, managers must showtime empathise that data technology is more than simply computers. Today, information technology must exist conceived of broadly to encompass the information that businesses create and use as well every bit a wide spectrum of increasingly convergent and linked technologies that process the data. In addition to computers, then, data recognition equipment, communications technologies, factory automation, and other hardware and services are involved.
The data revolution is affecting competition in three vital means:
It changes manufacture construction and, in and so doing, alters the rules of competition.
It creates competitive reward by giving companies new ways to outperform their rivals.
It spawns whole new businesses, ofttimes from within a company's existing operations.
We talk over the reasons why information technology has acquired strategic significance and how it is affecting all businesses. We then depict how the new technology changes the nature of competition and how astute companies have exploited this. Finally, we outline a procedure managers can use to assess the role of information technology in their business and to help define investment priorities to plow the applied science to their competitive advantage.
Strategic Significance
Data technology is changing the way companies operate. Information technology is affecting the entire process by which companies create their products. Furthermore, information technology is reshaping the production itself: the entire package of physical appurtenances, services, and data companies provide to create value for their buyers.
An important concept that highlights the office of it in contest is the "value chain."1 This concept divides a visitor's activities into the technologically and economically distinct activities information technology performs to practise business organization. We call these "value activities." The value a company creates is measured by the corporeality that buyers are willing to pay for a product or service. A business is profitable if the value it creates exceeds the toll of performing the value activities. To gain competitive advantage over its rivals, a company must either perform these activities at a lower cost or perform them in a fashion that leads to differentiation and a premium price (more than value).2
A visitor'southward value activities fall into nine generic categories (see Exhibit I). Master activities are those involved in the physical cosmos of the product, its marketing and delivery to buyers, and its support and servicing after sale. Back up activities provide the inputs and infrastructure that let the chief activities to take identify. Every activeness employs purchased inputs, homo resources, and a combination of technologies. Firm infrastructure, including such functions as general management, legal work, and accounting, supports the entire chain. Within each of these generic categories, a company volition perform a number of discrete activities, depending on the detail business. Service, for example, frequently includes activities such as installation, repair, adjustment, upgrading, and parts inventory management.
Exhibit I The value concatenation
A visitor's value chain is a organisation of interdependent activities, which are connected by linkages. Linkages exist when the manner in which one activity is performed affects the price or effectiveness of other activities. Linkages often create trade-offs in performing different activities that should be optimized. This optimization may crave trade-offs. For example, a more plush product design and more than expensive raw materials can reduce later-sale service costs. A company must resolve such merchandise-offs, in accordance with its strategy, to reach competitive advantage.
Linkages also require activities to be coordinated. On-time delivery requires that operations, outbound logistics, and service activities (installation, for example) should part smoothly together. Expert coordination allows on-time delivery without the demand for costly inventory. Conscientious direction of linkages is frequently a powerful source of competitive reward because of the difficulty rivals have in perceiving them and in resolving trade-offs beyond organizational lines.
The value chain for a visitor in a particular manufacture is embedded in a larger stream of activities that we term the "value system" (see Showroom Two). The value system includes the value chains of suppliers, who provide inputs (such as raw materials, components, and purchased services) to the company'due south value chain. The company's product oft passes through its channels' value chains on its way to the ultimate buyer. Finally, the product becomes a purchased input to the value chains of its buyers, who apply it to perform one or more buyer activities.
Showroom 2 The value system
Linkages non only connect value activities within a company but also create interdependencies between its value chain and those of its suppliers and channels. A company can create competitive reward by optimizing or analogous these links to the exterior. For example, a candy manufacturer may save processing steps by persuading its suppliers to evangelize chocolate in liquid form rather than in molded bars. Simply-in-time deliveries by the supplier may have the aforementioned effect. But the opportunities for savings through analogous with suppliers and channels make it beyond logistics and order processing. The visitor, suppliers, and channels tin can all benefit through ameliorate recognition and exploitation of such linkages.
Competitive reward in either cost or differentiation is a office of a visitor's value concatenation. A company's price position reflects the collective toll of performing all its value activities relative to rivals. Each value action has price drivers that decide the potential sources of a toll advantage. Similarly, a company'south ability to differentiate itself reflects the contribution of each value activity toward fulfillment of heir-apparent needs. Many of a company's activities—not just its physical product or service—contribute to differentiation. Buyer needs, in turn, depend not simply on the impact of the company's production on the buyer but as well on the company's other activities (for example, logistics or after-sale services).
In the search for competitive advantage, companies oft differ in competitive scope—or the breadth of their activities. Competitive telescopic has four key dimensions: segment scope, vertical scope (degree of vertical integration), geographic scope, and industry scope (or the range of related industries in which the company competes).
Competitive scope is a powerful tool for creating competitive advantage. Broad scope can allow the company to exploit interrelationships betwixt the value chains serving different industry segments, geographic areas, or related industries. For case, two business units may share ane sales force to sell their products, or the units may coordinate the procurement of common components. Competing nationally or globally with a coordinated strategy tin yield a competitive advantage over local or domestic rivals. By employing a broad vertical scope, a company can exploit the potential benefits of performing more than activities internally rather than utilise outside suppliers.
Past selecting a narrow scope, on the other mitt, a company may exist able to tailor the value concatenation to a particular target segment to accomplish lower cost or differentiation. The competitive advantage of a narrow scope comes from customizing the value chain to best serve particular product varieties, buyers, or geographic regions. If the target segment has unusual needs, broad-scope competitors will not serve it well.
Transforming the value chain
Information technology is permeating the value concatenation at every bespeak, transforming the way value activities are performed and the nature of the linkages among them. It besides is affecting competitive telescopic and reshaping the way products come across buyer needs. These basic furnishings explain why information technology has acquired strategic significance and is different from the many other technologies businesses use.
Every value activeness has both a concrete and an information-processing component. The physical component includes all the physical tasks required to perform the activity. The data-processing component encompasses the steps required to capture, manipulate, and channel the information necessary to perform the action.
Every value action creates and uses data of some kind. A logistics action, for example, uses information like scheduling promises, transportation rates, and production plans to ensure timely and cost-constructive delivery. A service activity uses information near service requests to schedule calls and order parts, and generates data on product failures that a company can use to revise production designs and manufacturing methods.
An action'southward physical and information-processing components may be simple or quite circuitous. Different activities require a different mix of the two components. For instance, metal stamping uses more physical processing than information processing; processing of insurance claims requires just the contrary balance.
For nigh of industrial history, technological progress principally affected the physical component of what businesses exercise. During the Industrial Revolution, companies achieved competitive advantage past substituting machines for human being labor. Information processing at that fourth dimension was generally the result of man attempt.
Now the stride of technological change is reversed. Information technology is advancing faster than technologies for concrete processing. The costs of information storage, manipulation, and transmittal are falling rapidly and the boundaries of what is feasible in information processing are at the same time expanding. During the Industrial Revolution, the railroad cut the travel fourth dimension from Boston, Massachusetts, to Hold, New Hampshire, from five days to four hours, a factor of 30.iii Just the advances in information technology are even greater. The toll of calculator power relative to the cost of manual information processing is at least viii,000 times less expensive than the price 30 years ago. Between 1958 and 1980 the time for 1 electronic performance fell by a factor of 80 1000000. Department of Defense studies show that the error rate in recording data through bar coding is i in 3,000,000, compared to 1 error in 300 manual data entries.four
This technological transformation is expanding the limits of what companies can do faster than managers can explore the opportunities. The information revolution affects all nine categories of value activeness, from assuasive computer-aided design in technology development to incorporating automation in warehouses (see Exhibit 3). The new technology substitutes machines for human attempt in information processing. Newspaper ledgers and rules of thumb take given mode to computers.
Exhibit Iii Information Engineering permeates the value concatenation
Initially, companies used information technology mainly for accounting and record-keeping functions. In these applications, the computers automated repetitive clerical functions such as order processing. Today it is spreading throughout the value chain and is performing optimization and control functions equally well as more judgmental executive functions. General Electric, for example, uses a information base of operations that includes the accumulated experience and (frequently intuitive) knowledge of its appliance service engineers to provide support to customers by phone.
Information technology is generating more data as a company performs its activities and is permitting it to collect or capture information that was not bachelor before. Such technology also makes room for a more comprehensive analysis and utilise of the expanded data. The number of variables that a company can analyze or command has grown dramatically. Hunt-Wesson, for instance, developed a computer model to aid information technology in studying distribution-center expansion and relocation bug. The model enabled the company to evaluate many more different variables, scenarios, and alternative strategies than had been possible before. Similarly, information technology helped Sulzer Brothers' engineers improve the design of diesel engines in means that transmission calculations could not.
Information technology is also transforming the concrete processing component of activities. Estimator-controlled car tools are faster, more than authentic, and more flexible in manufacturing than the older, manually operated machines. Schlumberger has developed an electronic device permitting engineers to measure the angle of a drill scrap, the temperature of a stone, and other variables while drilling oil wells. The result: drilling fourth dimension is reduced and some well-logging steps are eliminated. On the West Coast, some fishermen now utilise weather satellite data on bounding main temperatures to identify promising line-fishing grounds. This practice greatly reduces the fishermen'southward steaming time and fuel costs.
It non only affects how individual activities are performed but, through new information flows, it is too greatly enhancing a company'south ability to exploit linkages betwixt activities, both within and outside the visitor. The applied science is creating new linkages between activities, and companies tin now coordinate their actions more than closely with those of their buyers and suppliers. For example, McKesson, the nation's largest drug distributor, provides its drugstore customers with terminals. The company makes information technology so easy for clients to order, receive, and prepare invoices that the customers, in render, are willing to identify larger orders. At the same fourth dimension, McKesson has streamlined its order processing.
Finally, the new engineering has a powerful event on competitive scope. Data systems allow companies to coordinate value activities in far-flung geographic locations. (For example, Boeing engineers work on designs on-line with strange suppliers.) Information technology is also creating many new interrelationships among businesses, expanding the scope of industries in which a visitor must compete to achieve competitive advantage.
So pervasive is the touch on of information applied science that it confronts executives with a tough problem: likewise much information. This trouble creates new uses of information technology to store and analyze the alluvion of information available to executives.
Transforming the product
Most products accept always had both a physical and an data component. The latter, broadly divers, is everything that the buyer needs to know to obtain the product and use it to accomplish the desired outcome. That is, a product includes data about its characteristics and how it should exist used and supported. For example, convenient, accessible information on maintenance and service procedures is an important heir-apparent criterion in consumer appliances.
Historically, a product's physical component has been more than important than its data component. The new engineering science, however, makes information technology feasible to supply far more information along with the concrete product. For instance, General Electric's appliance service data base supports a consumer hotline that helps differentiate GE's service support from its rivals'. Similarly, some railroad and trucking companies offer upward-to-the-minute information on the whereabouts of shippers' freight, which improves coordination between shippers and the railroad. The new engineering science is also making it increasingly possible to offering products with no physical component at all. Compustat'southward customers accept access to corporate financial data filed with the Securities and Exchange Commission, and many companies have sprung upward to perform energy utilisation analyses of buildings.
Many products likewise process information in their normal performance. A dishwasher, for example, requires a command system that directs the various components of the unit through the washing cycle and displays the process to the user. The new information engineering is enhancing product functioning and is making it easier to boost a product's information content. Electronic control of the automobile, for example, is becoming more visible in dashboard displays, talking dashboards, diagnostic messages, and the like.
There is an unmistakable tendency toward expanding the information content in products. This component, combined with changes in companies' value bondage, underscores the increasingly strategic role of information technology. There are no longer mature industries; rather, there are mature ways of doing business.
Direction & footstep of change
Although a trend toward information intensity in companies and products is axiomatic, the role and importance of the engineering differs in each industry. Cyberbanking and insurance, for example, take always been information intensive. Such industries were naturally among the first and virtually enthusiastic users of data processing. On the other hand, concrete processing volition go on to boss in industries that produce, say, cement, despite increased information processing in such businesses.
Exhibit 4, which relates data intensity in the value chain to data content in the product, illuminates the differences in the office and intensity of information amidst diverse industries. The banking and newspaper industries accept a high data-engineering science content in both product and process. The oil-refining industry has a high utilize of information in the refining process simply a relatively low information content in the product dimension.
Exhibit IV Information intensity matrix
Because of the falling cost and growing capacity of the new technology, many industries seem to be moving toward a higher data content in both product and process. Information technology should exist emphasized that applied science will continue to ameliorate rapidly. The cost of hardware will continue to drop, and managers will continue to distribute the technology among even the lower levels of the company. The price of developing software, now a primal constraint, will fall as more packages become bachelor that are easily tailored to customers' circumstances. The applications of data engineering science that companies are using today are only a offset.
Information technology is not merely transforming products and processes simply also the nature of competition itself. Despite the growing use of information technology, industries will ever differ in their position in Exhibit Four and their pace of modify.
Irresolute the Nature of Competition
After surveying a wide range of industries, we find that information technology is changing the rules of competition in three ways. Kickoff, advances in it are changing the manufacture structure. Second, information technology is an increasingly important lever that companies can use to create competitive advantage. A visitor'southward search for competitive advantage through information engineering science frequently besides spreads to affect industry construction equally competitors imitate the leader's strategic innovations. Finally, the information revolution is spawning completely new businesses. These 3 furnishings are disquisitional for agreement the impact of information technology on a item manufacture and for formulating effective strategic responses.
Changing industry structure
The structure of an manufacture is embodied in 5 competitive forces that collectively determine industry profitability: the power of buyers, the ability of suppliers, the threat of new entrants, the threat of substitute products, and the rivalry among existing competitors (encounter Showroom V). The commonage force of the five forces varies from manufacture to industry, as does boilerplate profitability. The strength of each of the five forces can also alter, either improving or eroding the bewitchery of an industry.five
Showroom V Determinants of industry attractiveness
Information technology can alter each of the five competitive forces and, hence, manufacture bewitchery as well. The applied science is unfreezing the structure of many industries, creating the need and opportunity for modify. For case:
- Information engineering science increases the power of buyers in industries assembling purchased components. Automated bills for materials and vendor quotation files make information technology easier for buyers to evaluate sources of materials and make-or-buy decisions.
- Information technologies requiring large investments in circuitous software have raised the barriers to entry. For example, banks competing in cash management services for corporate clients at present need advanced software to requite customers on-line account information. These banks may also need to invest in improved figurer hardware and other facilities.
- Flexible computer-aided blueprint and manufacturing systems have influenced the threat of substitution in many industries by making it quicker, easier, and cheaper to comprise enhanced features into products.
- The automation of order processing and customer billing has increased rivalry in many distribution industries. The new technology raises fixed costs at the same time equally it displaces people. As a result, distributors must often fight harder for incremental book.
Industries such as airlines, financial services, distribution, and information suppliers (encounter the upper right-mitt corner of Exhibit IV) have felt these effects and so far.6 (Come across the insert, "Information Engineering and Industry Construction," for more examples.)
Information applied science has had a peculiarly strong impact on bargaining relationships between suppliers and buyers since it affects the linkages between companies and their suppliers, channels, and buyers. Information systems that cross company lines are becoming common. In some cases, the boundaries of industries themselves have changed.seven
Systems that connect buyers and suppliers are spreading. Xerox gives manufacturing data to suppliers electronically to help them evangelize materials. To speed up order entry, Westinghouse Electric Supply Company and American Hospital Supply have furnished their customers with terminals. Amidst other things, many systems heighten the costs of switching to a new partner because of the disruption and retraining required. These systems tend to tie companies more than closely to their buyers and suppliers.
Data technology is altering the relationship amid calibration, automation, and flexibility with potentially profound consequences. Large-scale product is no longer essential to achieve automation. Equally a result, entry barriers in a number of industries are falling.
At the aforementioned fourth dimension, automation no longer necessarily leads to inflexibility. For example, Full general Electric rebuilt its Erie locomotive facility as a big-scale even so flexible factory using computers to store all design and manufacturing data. Ten types of motor frames can be accommodated without manual adjustments to the machines. After installation of a "smart" manufacturing system, BMW tin can build customized cars (each with its own tailored gearbox, manual system, interior, and other features) on the normal assembly line. Automation and flexibility are accomplished simultaneously, a pairing that changes the pattern of rivalry amongst competitors.
The increasing flexibility in performing many value activities combined with the falling costs of designing products has triggered an avalanche of opportunities to customize and to serve pocket-sized market niches. Calculator-aided pattern adequacy not only reduces the cost of designing new products but as well dramatically reduces the cost of modifying or adding features to existing products. The toll of tailoring products to marketplace segments is falling, again affecting the blueprint of manufacture rivalry.
While managers tin utilize it to better their manufacture construction, the technology also has the potential to destroy that construction. For example, information systems now let the airline manufacture to modify fares ofttimes and to accuse many different fares between whatever two points. At the same fourth dimension, however, the technology makes the flight and fare schedules more than readily available and allows travel agents and individuals to shop around quickly for the lowest fare. The result is a lower fare structure than might otherwise be. Information technology has made a number of professional service industries less attractive by reducing personal interaction and making service more than of a article. Managers must look carefully at the structural implications of the new technology to realize its advantages or to be prepared for its consequences.
Creating competitive advantage
In any company, it has a powerful event on competitive advantage in either cost or differentiation. The technology affects value activities themselves or allows companies to gain competitive advantage past exploiting changes in competitive scope.
Lowering cost. As we have seen, information technology can alter a visitor's costs in any role of the value chain.eight The technology'southward historical impact on cost was confined to activities in which repetitive information processing played a large part. These limits no longer exist, however. Fifty-fifty activities like assembly that mainly involve physical processing now have a big information-processing component.
Canon, for instance, built a low-toll copier assembly process around an automated parts-selection and materials-handling system. Associates workers have bins containing all the parts needed for the particular copier. Canon's success with this system derives from the software that controls parts inventory and selection. In insurance brokerage, a number of insurance companies usually participate in underwriting a contract. The costs of documenting each visitor's participation are high. At present a computer model can optimize (and oftentimes reduce) the number of insurers per contract, lowering the broker'southward full cost. In garment production, equipment such as automatic pattern drawers, fabric cutters, and systems for delivering textile to the concluding sewing station have reduced the labor time for manufacturing by up to fifty%. (Encounter the insert, "Aim: A Competitive Edge," for farther examples.)
In addition to playing a direct role in price, data technology often alters the cost drivers of activities in ways that tin can improve (or erode) a visitor'south relative cost position. For example, Louisiana Oil & Tire has taken all ten of its salespeople off the road and made them into telemarketers. Equally a result, sales expenses have fallen by 10% and sales volume has doubled. However, the move has made the national scale of operations the key determinant of the toll of selling, rather than regional scale.
Enhancing differentiation. The touch on of information technology on differentiation strategies is equally dramatic. As noted earlier, the role of a company and its product in the buyer's value chain is the primal determinant of differentiation. The new it makes it possible to customize products. Using automation, for instance, Sulzer Brothers has increased from five to eight the number of cylinder bore sizes of new low-speed marine diesel engines. Shipowners now cull an engine that is more precisely suited to their needs and thereby compensate significant fuel savings. Similarly, Digital Equipment'south artificial intelligence system, XCON, uses decision rules to develop custom computer configurations. This dramatically reduces the time required to fill orders and increases accuracy—which enhances Digital's prototype as a quality provider.
Past bundling more information with the physical product package sold to the buyer, the new applied science affects a company's ability to differentiate itself. For instance, a magazine distributor offers retailers processing credits for unsold items more efficiently than its competitors. Similarly, the embedding of information systems in the physical production itself is an increasingly powerful fashion to distinguish it from competing appurtenances.
Changing competitive scope. Information technology can alter the relationship between competitive scope and competitive reward. The engineering science increases a company's ability to coordinate its activities regionally, nationally, and globally. It can unlock the ability of broader geographic scope to create competitive reward. Consider the newspaper industry. Dow Jones, publisher of the Wall Street Journal, pioneered the page transmission applied science that links its 17 U.S. printing plants to produce a truly national paper. Such advances in advice plants have also made information technology possible to movement toward a global strategy. Dow Jones has started the Asian Wall Street Journal and the Wall Street Journal-European Edition and shares much of the editorial content while printing the papers in plants all over the earth.
The information revolution is creating interrelationships among industries that were previously divide. The merging of computer and telecommunications technologies is an important example. This convergence has profound furnishings on the construction of both industries. For instance, AT&T is using its position in telecommunication as a staging point for entry into the computer manufacture. IBM, which recently caused Rolm, the telecommunications equipment manufacturer, is now joining the competition from the other direction. Information technology is besides at the core of growing interrelationships in fiscal services, where the banking, insurance, and brokerage industries are merging, and in part equipment, where one time singled-out functions such every bit typing, photocopying, and information and vocalism communications can now exist combined.
Broad-line companies are increasingly able to segment their offerings in ways that were previously viable only for focused companies. In the trucking industry, Intermodal Transportation Services, Inc. of Cincinnati has completely changed its system for quoting prices. In the by, each local office set prices using transmission procedures. Intermodal at present uses microcomputers to link its offices to a eye that calculates all prices. The new system gives the company the capacity to introduce a new pricing policy to offering discounts to national accounts, which identify their orders from all over the country. Intermodal is tailoring its value chain to large national customers in a way that was previously impossible.
As data technology becomes more than widespread, the opportunities to take advantage of a new competitive scope will merely increase. The benefits of telescopic (and the achievement of linkages), however, tin accrue only when the information applied science spread throughout the organization tin can communicate. Completely decentralized organizational design and application of information technology will thwart these possibilities, because the information technology introduced in various parts of a company volition not be uniform.
Spawning new businesses
The information revolution is giving birth to completely new industries in 3 distinct ways. First, information technology makes new businesses technologically feasible. For example, modern imaging and telecommunications engineering science blend to support new facsimile services such as Federal Express's Zapmail. Similarly, advances in microminiaturization fabricated personal computing possible. Services such as Merrill Lynch'southward Cash Management Account required new it to combine several financial products into i.
Second, it can as well spawn new businesses by creating derived need for new products. One instance is Western Union'due south EasyLink service, a sophisticated, high-speed, information-communications network that allows personal computers, word processors, and other electronic devices to send messages to each other and to telex machines throughout the world. This service was not needed before the spread of it caused a demand for it.
Third, data technology creates new businesses within old ones. A visitor with information processing embedded in its value concatenation may have excess capacity or skills that can be sold exterior. Sears took advantage of its skills in processing credit card accounts and of its massive scale to provide similar services to others. It sells credit-authorization and transaction-processing services to Phillips Petroleum and retail remittance-processing services to Mellon Banking company. Similarly, a manufacturer of automotive parts, A.O. Smith, adult data-communications expertise to meet the needs of its traditional businesses. When a bank consortium went looking for a contractor to run a network of automated teller machines, A.O. Smith got the job. Eastman Kodak recently began offering long-distance phone and data-transmission services through its internal telecommunications system. Where the information technology used in a company'southward value chain is sensitive to calibration, a company may meliorate its overall competitive advantage by increasing the scale of information processing and lowering costs. By selling extra chapters outside, it is at the same time generating new revenue.
Companies as well are increasingly able to create and sell to others information that is a by-product of their operations. National Benefit Life reportedly merged with American Can in part to gain access to information on the nine meg customers of American Tin can's direct-mail retailing subsidiary. The utilise of bar-code scanners in supermarket retailing has turned grocery stores into market enquiry labs. Retailers can run an ad in the morning newspaper and find out its effect past early afternoon. They can likewise sell this data to market research companies and to food processors.
Competing in the Age of Information
Senior executives can follow v steps to take advantage of opportunities that the information revolution has created.
1. Assess information intensity. A company'south first task is to evaluate the existing and potential information intensity of the products and processes of its business concern units. To help managers accomplish this, we have adult some measures of the potential importance of it.
It is very likely that information technology will play a strategic role in an industry that is characterized past one or more than of the following features:
- Potentially high information intensity in the value concatenation—a large number of suppliers or customers with whom the company deals directly, a product requiring a big quantity of information in selling, a product line with many distinct product varieties, a product composed of many parts, a large number of steps in a company's manufacturing process, a long cycle time from the initial order to the delivered product.
- Potentially loftier information intensity in the product—a product that mainly provides information, a product whose operation involves substantial information processing, a product whose utilize requires the heir-apparent to process a lot of data, a product requiring especially high costs for buyer training, a product that has many culling uses or is sold to a buyer with loftier information intensity in his or her own business.
These may help place priority business organization units for investment in it. When selecting priority areas, remember the breadth of it—it involves more than than unproblematic computing.
2. Determine the role of information technology in industry structure. Managers should predict the likely impact of information applied science on their industry'south structure. They must examine how information technology might affect each of the five competitive forces. Non simply is each force probable to modify only industry boundaries may change as well. Chances are that a new definition of the industry may be necessary.
Many companies are partly in command of the nature and pace of change in the industry structure. Companies accept permanently altered the bases of competition in their favor in many industries through ambitious investments in information technology and have forced other companies to follow. Citibank, with its automatic teller machines and transaction processing; American Airlines, with its computerized reservations organization; and USA Today, with its newspaper page transmission to decentralized press plants, are pioneers that have used information technology to alter industry structure. A company should understand how structural change is forcing it to respond and expect for ways to lead modify in the industry.
3. Place and rank the ways in which data technology might create competitive advantage. The starting assumption must be that the engineering is likely to affect every activity in the value chain. Equally important is the possibility that new linkages among activities are existence fabricated possible. By taking a conscientious expect, managers can place the value activities that are likely to be virtually affected in terms of cost and differentiation. Obviously, activities that represent a large proportion of cost or that are critical to differentiation bear closest scrutiny, particularly if they take a pregnant data-processing component. Activities with important links to other activities inside and outside the visitor are also critical. Executives must examine such activities for ways in which information applied science can create sustainable competitive advantage.
In addition to taking a hard expect at its value concatenation, a company should consider how it might allow a change in competitive scope. Can data technology assist the visitor serve new segments? Volition the flexibility of information engineering allow broad-line competitors to invade areas that were in one case the province of niche competitors? Will information technology provide the leverage to expand the business globally? Can managers harness information technology to exploit interrelationships with other industries? Or, tin the technology help a company create competitive advantage by narrowing its scope?
A fresh look at the company's product may as well be in order:
Can the company bundle more than information with the product?
Tin can the visitor embed information engineering science in it?
4. Investigate how data technology might spawn new businesses. Managers should consider opportunities to create new businesses from existing ones. It is an increasingly of import avenue for corporate diversification. Lock-mind, for example, entered the data base of operations concern by perceiving an opportunity to use its spare computer chapters.
Identifying opportunities to spawn new businesses requires answering questions such as:
What information generated (or potentially generated) in the business could the company sell?
What information-processing capacity exists internally to start a new concern?
Does information technology brand it feasible to produce new items related to the company's product?
v. Develop a programme for taking advantage of information technology. The first four steps should lead to an activity plan to capitalize on the information revolution. This action program should rank the strategic investments necessary in hardware and software, and in new product development activities that reflect the increasing information content in products. Organizational changes that reflect the role that the technology plays in linking activities inside and outside the company are likely to be necessary.
The direction of information technology tin no longer be the sole province of the EDP department. Increasingly, companies must employ information technology with a sophisticated agreement of the requirements for competitive reward. Organizations demand to distribute the responsibility for systems evolution more widely in the organization. At the aforementioned time, general managers must be involved to ensure that cross-functional linkages, more possible to accomplish with information technology, are exploited.
These changes do not hateful that a central information-technology part should play an insignificant role. Rather than control data engineering science, however, an IS manager should coordinate the architecture and standards of the many applications throughout the organisation, besides as provide assistance and coaching in systems development. Unless the numerous applications of information technology within a company are compatible with each other, many benefits may be lost.
Information technology can assistance in the strategy implementation procedure. Reporting systems can runway progress toward milestones and success factors. By using information systems, companies can measure their activities more than precisely and assist motivate managers to implement strategies successfully.9
The importance of the data revolution is not in dispute. The question is not whether it will have a meaning bear on on a visitor'southward competitive position; rather the question is when and how this impact volition strike. Companies that conceptualize the power of information technology will be in control of events. Companies that do not answer will exist forced to accept changes that others initiate and will find themselves at a competitive disadvantage.
1. For more information on the value concatenation concept, encounter Michael Due east. Porter, Competitive Reward (New York: Gratis Press, 1985).
2. For a discussion of the ii basic types of competitive reward, run into Michael E. Porter, Competitive Strategy (New York: Complimentary Press, 1980), Chapter 2.
3. Alfred D. Chandler, Jr., The Visible Mitt (Cambridge: Belknap Press of Harvard Academy Press, 1977), p. 86.
4. James L. McKenney and F. Warren McFarlan, "The Information Archipelago—Maps and Bridges," HBR September–October 1982, p. 109.
5. See Michael E. Porter, "How Competitive Forces Shape Strategy," HBR March–Apr 1979, p. 137.
vi. Come across F. Warren McFarlan, "Data Technology Changes the Way You Compete," HBR May–June 1984, p. 98.
7. James I. Cash, Jr. and Benn R. Konsynski, "IS Redraws Competitive Boundaries," HBR March–Apr 1985, p. 134.
8. Meet Gregory L. Parsons, "Information technology: A New Competitive Weapon," Sloan Management Review, Autumn 1983, p. 3.
9. Victor East. Millar, "Decision-Oriented Data," Datamation, January 1984, p. 159.
A version of this article appeared in the July 1985 upshot of Harvard Business concern Review.
Source: https://hbr.org/1985/07/how-information-gives-you-competitive-advantage
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