The document discusses how information systems can provide competitive advantages for firms. It examines how investments in information systems technology can help firms gain market share, increase efficiency, and strengthen relationships with customers and suppliers. The document also analyzes how information systems relate to Porter's five competitive forces model - specifically looking at how systems can impact barriers to entry, buyer/supplier power, and threats of substitution. Overall, the document argues that information systems are a core component of business strategy and can be leveraged to achieve competitive differentiation when properly aligned with a firm's overall strategic goals.

1. Special Topics in Information Systems: Readings in Human-Centered
Computing
By Emanuel Baisire

2. 1
Information Systems and Competitive Strategy
Abstract
The paper examines the impact of information systems technology in achieving competitive
edge. The paper reviews several firms’ attempt to out-compete rivals through the use of
information systems and streamlining production cost by adopting new business processes that
are influenced by information systems. Many organizations have embraced the use of
information systems to gain market share, increase customer loyalty and introduce new products
to consumers The existence of transaction processing systems and decision support systems have
eased the process in which important business decision are reached. The paper also links the
impact and value of information systems in determining an ideal competitive strategy for a firm
within an industry. It also examines how firms apply information systems technology to execute
business processes.
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Information Systems and Competitive Strategy
Introduction
The focus of this paper is to understand the influence played by information systems in shaping
new industry structures and increasing the rate of first-mover advantage .Organizations have
realized that the only way to compete more effectively is to make significant investments in
information technology infrastructures. It is also important to note that firms investing in
advanced information technology but avoid other complementary assets tend to fail in their
attempt to become profitable or improving their business process. Information systems are
catalyst for rolling out new strategies and helping towards cost reduction initiatives. Information
systems have a tremendous impact in increasing organizational efficiency and effectiveness1.
The paper also explores the extent to which information systems can be applied to Porter’s
(1998) five competitive forces of threat of new entrants, rivalry among existing firms, the threat
of substitutes, bargaining power of buyers and suppliers.
Information Systems Success
Information system is a set of interrelated components that gather and distribute information to
support tasks and other decision-making processes2. Competitive strategy is a firm’s ability to
position itself in a more advantageous sphere than other firms within the industry3. The logic of
1
2
Bakos, Y.J. and M.E. Treacy, “Information Technology and Corporate Strategy: A Research Perspective”, MIS Quarterly, vol.10,
no.2, pp. 107-119, 1986.
Laudon, K.C. and Laudon, P.L.(2007). Managing Information Systems: Managing the Digital Firm, Upper Saddle River Pearson
Prentice Hall..
3
Porter, M.E (1998). Competitive Advantage: Creating and Sustaining Superior Performance: With
A New Introduction. New York: Free Press.
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adopting a competitive strategy is to map out a profitable and sustainable path that is superior in
relation to industry competition. Information systems process data into information resources
that are used by senior executives, middle managers, line workers and external partner
organizations. Information systems can be designed for operational purposes within an
organization and in some instances it can be an inter-organizational information system
overlapping organizational boundaries4. Although information needs differ within organizations,
each employee is tasked with achieving certain goals and objectives set by the organization.
The value –added chain analysis and Porter’s framework for competitive analysis are the two
recognized approaches on how firms use information systems to gain competitive advantage5.
Information system is a core component in value chain process because every step during the
value chain process disseminates and uses information (Porter, 1998).
Information systems can create competitive opportunities in areas of operational efficiency,
inter-organizational synergies, product innovation, customer and suppliers loyalty6. Firms are
advised not to consider investments in information systems for costs reduction purposes only but
should also focus on systems that add value to the product or service7. Firms that are well
positioned and having the needed resources to add value to their product but lacking a
comprehensive information system will lag behind their competitors.
In order to gain a competitive edge, organizations may launch an information system aimed at
improving the way products and services are delivered to its customer or by simply streamlining
4
5
6
7
Bakos, Y.J., “ A Strategic Analysis of Electronic Market Places”, MIS Quarterly, vol.15, no.3, pp. 295-310, 1991.
Ibid.
Ibid.
Blake, I., G.P. Learmonth, “The Information System as a Competitive Weapon”, Communications of the ACM, vol.27, no.12,
Pp.1193-1201, 1984.
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a distribution channel to meet current demand8. In some cases, the need may be to directly
benefit a company’s internal operations. For instance a company may launch an automation
system to process sales order and invoices for the sales and marketing team. The customer
centered information system may be an order-entry system that enables potential clients to punch
in their orders without interacting with any company employee. This initiative may save a
company from incurring extra costs related to wages and other office supplies.
Information systems ease the way in which consumers acquire products and services. For
instance major chain hotels have put in place check-ins and check-out electronic kiosks linked to
airline sites and other attractions. Customers that value convenience are more likely stay in
hotels that provide such services thus creating brand loyalty.
It should be noted that information systems should not only store data and information but rather
the same information has to be manipulated in order to create value to the organization. For
instance, an inventory information system that only stores and retrieve information may not be as
effective as another system that uses the stored information to solve different business problems.
A valued inventory information system should have the capability of automatically triggering
supply orders from suppliers and analyze data to initiate promotional sales and product pricing.
Firms that adopt new technological innovations and information systems much earlier than their
counterparts tend to gain a first mover advantage within the industry. Information systems can
affect positioning to new market entrant due to extensive and expensive barriers. Organization’s
choice for a specific information system can be influenced by individuals but the entire
organization needs to rally behind a chosen strategy if it is to be effective.
8
Notowidigdo, M.H., “ Information Systems: Weapons to Gain the Competitive Edge”, Finance, Executive, vol.52, no.2 pp.20-25,
1984.
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In case of Wal-Mart, it positioned itself as a retail industry leader by making significant
investments in inventory replenishment systems. It uses the system to monitor store sales and
share instant information with suppliers globally to ensure timely delivery of demanded
products. Early adoption of this technology enabled Wal-Mart to surpass all its major
competitors and became an industry leader by integrating information systems as a core element
of its business strategy (Porter, 1998).
A decision to purchase information technologies such as electronic data interchange (EDI) and
point-of-sale scanners can leverage a firm’s competitiveness through costs reduction and low
prices to customers (Boulton et al, 1992). Sears Corp. launched an information system that
automatically generates postcard alerts to remind customers to renew their service contracts. By
using the system, Sears has been able to attract a group of strong and loyal customers thus
boosting service revenues and customer intimacy.9
Competitive forces and information systems
Information systems are important for firms that need to remain competitive in such a dynamic
business environment. Information systems play a significant role in reshaping market shares,
strengthening relationships between businesses and customers or businesses and suppliers10.
According to Porter (1998), firms develop their business strategies in order to obtain competitive
advantage over their competitors. It is argued that firms will only succeed if they are able to
choose and develop competitive forces that are in line with the overall business strategy. The five
competitive force models advocated by Porter include new market entrants, substitute product
and services, intensity of rivalry, bargaining power of buyers and suppliers.
9
Ibid.
Avison & Fitzgerald 1995, Information Systems Development: Methodologies, Techniques and Tools 2nd ed.
McGraw Hill, Maidenhead.
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Figure
1:
The
Five
Competitive
Forces
Driving
Industry
Profitability
Adapted from M.E. Porter, Competitive Advantage, Free Press, 1998
Information systems and entry barriers
A firm’s investment in information systems can act as an entry barrier to the industry. For
instance, a decision by FedEx and UPS to invest in logistical integrated system in order to ship
and track customer’ packages worldwide enables them to limit new entrants in the market and at
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the same time differentiating themselves from other carriers. Similarly ownership of computer
reservation systems by many service industries that requires large capital expenditure limits
would be competitors from joining the industry. The innovative idea of using portable computer
terminals by sales representatives allows them to analyze customer needs and prepare sales
proposal onsite without concurring with senior managers11. The threat of market entry depends
on entry barriers or the ability of new firms entering the industry. In case of low entry barriers,
firms will attempt to join the industry thus increasing competition and eroding potential profits
(Grim et al 2006). The threat of entry is widely experienced in situations where economies of
scale and capital requirements to enter the industry are low.
Information Systems and buyer power
Information technology in form of extensive databases and other data mining techniques used by
companies like Expedia allow consumers to compare prices offered by different hotels and
airlines thus increasing buyer power. The internet has also increased buyers power by providing
consumers with needed information to compare prices to reach a purchase decision. However,
firms can maintain an edge on its customers by devising a strategy that makes it harder or
expensive for consumers to switch to other products. Information systems technology can tilt the
balance of power between an industry and its consumers.
In circumstances where a buyer holds more power, buyers will possess tremendous power to
determine price structures of a product and its quality (Grim et al 2006). The situation arises
mostly with products that are not differentiated. A firm’s ability to influence prices is mostly
curtailed when a buyer is a large volume buyer or has full information about a product’s market
trend.
11
Ibid.
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Information systems and suppliers power
Information systems technology has a dominant power in shifting the balance of power between
industry players and its suppliers (Porter, 1998). When a firm’s existence depends on one or few
suppliers, the supplier will more likely yield strong power and able to charge higher prices for
poor quality goods (Grim et al 2006). The emergence of web technology has diminished the
power of suppliers by allowing companies to source product in-puts and materials from suppliers
worldwide. Web technology reduces the reliance on a single and powerful supplier that may
dictate product prices and supply quality which might undermine a firm’s profit margin.
Companies like Honeywell and Dell have implemented web technologies enabling them to
contract with several suppliers all over the world.
Web technologies, centralized computer systems and distributed database systems have
decreased supplier’s power. Such a readily available resource provides firms with the
opportunity to contract with several suppliers globally and also communicate instantly with
suppliers thus reducing the dominance of supplier’s power on firms.
Information systems and threat of substitutes
Information systems and the use of internet have enabled Apple computers to sell downloadable
music to the public thus acting as a substitute for compact disc music. Information technology
through the use of teleconferencing is also becoming a substitute for business travel and office
works. Such kind of technology allows individuals to virtually work anywhere while stationed in
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one location. Information systems technologies have revolutionized production process leading
to new innovations and new products (Porter, 1998).
Conclusion
Information systems technology have become a core component in the business process of many
firms trying to maximizing their revenue and at the same time the satisfying the changing needs
of consumers. It is also important because it enable organizations to identify and deploy new
strategies and cost reduction techniques in a timely manner than their competitors. Firms need to
integrate their business processes in order to gain a competitive advantage. However, firms
should make a clear choice as to which competitive strategy is feasible within a specific industry.
It is also worth noting that competitive strategy may works well in one industry and may not be
appropriate in another. A firm’s competitive strategy should be one that position it reduce cost
and set itself in a unique position that can not be easily imitated by competitors in the industry.
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Reference:
Avison & Fitzgerald 1995, Information Systems Development: Methodologies,
Techniques and Tools 2nd ed. McGraw Hill, Maidenhead.
Bakos, Y.J. and M.E. Treacy, “Information Technology and Corporate Strategy: A
Research Perspective”, MIS Quarterly, vol.10, no.2, pp. 107-119, 1986.
Bakos, Y.J., “ A Strategic Analysis of Electronic Market Places”, MIS Quarterly, vol.15,
no.3, pp. 295-310, 1991.
Blake, I., G.P. Learmonth, “The Information System as a Competitive Weapon”,
Communications of the ACM, vol.27, no.12, pp.1193-1201, 1984.
Boulton W.C. and Davidson N.W. (1992). Developing Information Technology Strategy:
Major Issues and Methods, Idea Group Publishing IRMA.
Grim et al (2006). Strategy as Action: Competitive Dynamics and Competitive
Advantage, New York: Oxford University Press.
Laudon, K.C. and Laudon, P.L.(2007). Managing Information Systems: Managing the
Digital Firm, Upper Saddle River Pearson Prentice Hall.
Notowidigdo, M.H., “Information Systems: Weapons to Gain the Competitive Edge”,
Finance, Executive, vol.52, no.2 pp.20-25, 1984.
Porter, M.E (1998). Competitive Advantage: Creating and Sustaining Superior
Performance: With A New Introduction. New York: Free Press.
Rackoff, N., C. Wiseman, and W. Ullrich, “Information Systems for Competitive
Advantage: Implementation of Planning Process”, MIS Quarterly, vol.9, no.4, pp.285294, 1985.
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