The significance of different types of information systems (ISs) has been acknowledged by many business icons (Diez and Brian 3). Advancement in the provision of information has led to the development of information systems which support business plans and corporate missions (O’Brien and George 5). Generally, the most common information systems used by most companies focus on strategies, finance and operations. For some organizations a well directed operational and financial systems may be viewed as the strategic systems (Hemmatfar, Mahdi and Marziyeh 158).
In the recent past, most top managers had little interest in the link between the functions of information systems and organizational strategies. As a result, organizations experienced myriad challenges because they were unable to realize their goals (Hemmatfar, Mahdi and Marziyeh 158). The current organizations are gradually becoming knowledge-based ventures in which information management is significant in achieving competitive advantage (Kemerer 5). Over the last ten years the focus of many studies has been on strategic information systems and its elements and this has significantly changed. Currently, the focus is on knowledge management and how information systems help companies to achieve competitive advantage in the respective industry (Diez and Brian 4).
Information systems play a very significant role in all aspects of business operations, for instance, decision making and recruitment process (Ahlemann 20). In the earlier days, information systems were thought to be the same as business data processing. For this reason, information systems were treated like backroom processes that support routine tasks. Nonetheless, in the last two decades, there has been a mounting recognition of the need to make information systems a strategic tool in organizations (Hemmatfar, Mahdi and Marziyeh 158).
Strategic Information Systems
Callon defines strategic information system as a system that supports or shapes the competitive strategy of organizational components (7). There are other numerous definitions of strategic information system (SIS). For instance, Laudon and Jane define SIS as an information system that supports or change business strategy (160). However, Hemmatfar, Mahdi and Marziyeh provide the clearest definition of SIS; they define SIS as a system that facilitates organizational change, or else adjust their strategies and structures (158). Strategic information systems are normally used to restructure and accelerate the response time to external shocks and assist in attaining a competitive edge over the rivals.
The main features of strategic information systems include: decision support systems, enterprise resources planning, database systems, and the real time information systems. The decision support system helps in developing plans that align information systems with the business strategies. Key enterprise resource planning integrates organizational processes to optimize resource use and meet business objectives. Having excellent data mining capabilities, database systems make the proper use of existing information for company activities and operations. In addition, the strategic information systems ease the process of identifying data gathering strategies to aid in the optimization of database marketing prospects. Last but not least, real time information systems uphold quick response and value markers (Hemmatfar, Mahdi and Marziyeh 159).
Any information system that can help an organization gain a competitive edge over rivals or minimize competitive disadvantage by altering ambitions, processes, end products or external links is a strategic information system (Diez and Brian 590). According to Michael Porter’s five forces analysis, a competitive strategy is a comprehensive plan that entails business survival plans, goals and strategies needed to execute those goals (9). Porter believed that all business entities always strive to have a competitive edge over rivals in the industry. The competitive advantage is determined through a number of measures including costs, excellence and speed among others. He adds that competitive advantage is the sole determinant of a company’s progress or failure. The objective of such advantage is to take control of the market and make supernormal profits (Porter 10).
Crowther highlights some of the most common strategies used by organizations to gain competitive advantage (81). The strategies include: delivering products or services at a lower cost, product differentiation, market segmentation and innovativeness (82). Delivering products or services at a lower cost does not in essence imply offering the lowest cost, but a cost that is both attractive and able to yield a satisfactory return on investment (Crowther 83).
Product differentiation refers to the addition of exceptional qualities to products and services to enhance their market competitiveness. In most cases a single product is differentiated through packaging and branding. In this strategy, the elements that are generally valued by customers are chosen. The principal objective of differentiation is to attain and maintain superior performance in terms of consumer satisfaction over the rivals. Successful differentiation can also result to supernormal profits if there is fairly accurate cost uniformity. Market segmentation is the identification and creation of market niches that are yet to be exploited or not fully exploited. Information technology (IT) is generally capable of providing means for identifying, expanding and occupying a given market segment. Lastly, innovativeness refers to the development of products or services through new IT applications and considerably from other contributions (Crowther 82).
Strategic information systems (SIS) assist companies to achieve a competitive edge in the industry through its contribution to the strategic goals and its capability to considerably enhance performance and efficiency of the organization (Hemmatfar, Mahdi and Marziyeh 159). Callon claims that strategic information system enables organizations to achieve a competitive edge and significantly benefit at the expense of the organizations that are very much disadvantaged competitively (25). He adds that competitive advantage in the current digital economy is more profound than in the previous economies.
Digital economy has radically transformed some business entities. Technological advancements, changes in the market place and budding models of businesses can extremely alter the industrial environment and level of competition. However, the digital economy has not impacted the core business of many organizations (O’Brien and George 55). Information technology basically provides tools, at times very influential tools, which enhances organizational success through the conventional sources of competitive advantage. The conventional sources of competitive advantage include: exceptional client service, product and service delivery at low cost and excellent supply chain management among others.
According to Kremer, strategic information systems were initially superficially focused, that is, they were intended to enhance direct and noticeable competition in the industry (15). All of these were aimed at attaining a competitive edge over competitors (Kremer 16). However since the early 90s, strategic information systems have been focused inwardly. They center on increasing the competitive advantage of a company by enhancing worker’s productivity, restructuring business operations and enhancing decision-making process (Kemerer 18).
O’Brien and George stress that the advancement in information technology has greatly impacted the lives of most individuals; however, the strategic information system distributes goods and services at less cost, that are differentiated and at different market segments (12). In other words, information technology and information systems are being used to enhance the lives of individuals and businesses at large. The growing demand for information system and information technology has made organizational management increasingly intricate and thorny. In a nutshell, strategic information systems are dissimilar from other systems in the following ways: first, they transform the manner in which organizations compete; second, they are superficially focused; third, they are generally linked to high risk projects; and lastly, they are very innovative.
The link between Strategic Management and information technology
Initially, strategic information system was defined as a system that offers support or transforms business plans. On the other end, strategic management is defined as the method of planning strategies for prospective operations. In other words, Strategic information system is an information system that helps in the management of information and strategic decision-making (Callon 7). The term “strategic” draws attention to the long-term aspect of management and to the massive scale of benefits expected from those elements. The principle elements in developing strategic information systems are instigation, collection of information, formulation of plans and immediate response. These features help in prioritizing proposed information systems in order to underscore features that are significant for short-term development (Hemmatfar, Mahdi and Marziyeh 160).
Information technology and strategic management are dependent variables. Hemmatfar, Mahdi and Marziyeh introduce eight aspects of information technology that contribute to strategic management (60). These factors are: innovative applications; competitive weapons; changes in processes; links with business associates; cost reductions; relationship with key stakeholders (suppliers and customers); new products; and competitive intelligence (Hemmatfar, Mahdi and Marziyeh 161).
Information technology develops innovative applications that provide a competitive advantage over rivals. For instance, Federal Express was the first corporation to introduce parcel/package tracker in its system. Similarly, DHL was the first corporation to come up with a database that could be used by its clients. These applications offer electronic solutions and creation of other software (Kemerer 65). Information systems have been acknowledged for long as a weapon for attaining competitive advantage. Information system can be used to outmaneuver the competitor (Hemmatfar, Mahdi and Marziyeh 161).
Information system also supports adjustments in organizational processes that lead to the attainment of strategic advantage. For example, a local company can operate globally and maintain a unified business processes through the help of information technology. Other ways in which information technology can alter corporate strategies include: better control of distant branches through the rapid communication apparatus, restructuring product processing duration with automated machines and improved decision-making process due to timely processing of reports (Laudon and Jane 23).
Information technology links companies with its key. Recent advancement in information technology has also expanded the scope of the market (Laudon and Jane 23). Information technology also enhances an organization to minimize cost. For instance, it is relatively expensive to carry out cash transactions through conventional means than through the web. According to Kemerer, transactions handled by banks physical agents are over 20 times more expensive than through automated agents.
Information technology strengthens the relations between the company and its customers, thus making it very hard for to switch to rival companies (Hemmatfar, Mahdi and Marziyeh 162). Companies can also utilize information technology to develop new products and services in accordance with the consumer demand. In addition, massive investment in IT increases profitability and enhances company’s competitiveness. Last but not least, information technology provides business with competitive intelligence by gathering and examining external shocks (Laudon and Jane 23).
Hemmatfar, Mahdi and Marziyeh explain that information about the competitors is usually very important in marketing battles (63). The accessibility or availability of such information may determine the winner or the loser. Information gathered through competitive intelligence widens market knowledge, enhances information management and increases the features of strategic planning. There are a number of examples where competitive intelligence has considerably helped specific companies realize their goals, and gain competitive advantage in the industry, for instance, a telecommunication unearthed its rival’s legal strategy and this gave the company an upper hand over litigation matters.
Diez and Brian explain that competitive intelligence can be carried out effectively using the current technologies, for example, computerized agents, internet, optical character identification and many more (66). However, the internet is the most important device for competitive intelligence (Diez and Brian 67). They stress on the significance of the investigative ability of a range of internet tools. These tools can assist organizations to carry out certain exploratory strategies. Laudon and Jane believe that the sheer gathering of information pertaining to a rival is not enough (25). The most significant aspect of competitive intelligence is the evaluation and interpretation process. Another feature of competitive intelligence, though ominous, is industry spying. Industrial spying is regarded as immoral and unlawful.
Information Systems strategy for Competitive advantage
According to some literatures, strategic competitive advantage can be achieved when information systems design and strategy developments are handled together. Michael Porter’s five forces model identified the forces that influence competitive edge in the market (Hemmatfar, Mahdi and Marziyeh 163). Diez and Brian claim that the greatest interest of most top managers at the moment is developing strategies that can counter Porter’s five forces (68). In order to achieve this, companies need to come up with strategies that ensure that company’s activities are different from the rivals.
Porter recommended cost effective leadership, differentiation strategies and market segmentation or niche strategies. Other additional strategies proposed by other strategic management literatures include: growth strategy, alliance strategy, innovation strategy, operational effectiveness strategy, customer orientation strategy, time strategy, key stakeholder strategy and the switching cost strategy (Hemmatfar, Mahdi and Marziyeh 164).
Cost leadership strategy takes into account measures that are aimed at producing products or services at a minimal cost. Cost leadership strategy can be achieved through prudent purchasing practices, resourceful organizational processes, forcing the competitors’ prices up, and assisting clients or suppliers to minimize their cost (Porter 68). Example of a company using this approach is Wal-Mart supermarket. It uses this strategy to minimize operational cost and to offer reasonable prices to the consumers. The company’s stock replacement system automatically sends orders to the company suppliers immediately an item is sold off. This system ensures only reasonable amount of inventory is available in the warehouse, thus reduces operational cost and responds promptly to consumer needs. The system utilizes sales data captured at all points of sales.
Differentiation strategy entails provision of different types of goods and services or identical products with different features. Product differentiation increases the value of products or services, thus enhances the profit margin. On the other hand, niche strategy involves the selection of a given market segment or market niche and offering distinct quality, prices and service speed (Porter 69).
Development strategies are normally aimed at discovering new market, attracting more consumers and increasing sales. This normally fortifies an organization and increases its revenue base in the long-term. Information technology can facilitate growth by increasing market share, for instance, creating online markets and electronic auctions (Kemerer 75). Coalition strategy is linked to the formation of huge network of independent businesses through partnerships and mergers. This strategy is aimed at creating synergies, enable companies to focus on their core businesses and offer new growth prospects (Hemmatfar, Mahdi and Marziyeh 163).
Innovation strategy involves creation of new products and services, improvement of the existing products and introduction of new processes. Innovation is almost synonymous with product differentiation apart from the fact that the former is more spectacular. Product differentiation alters the superficial appearance of the existing products and services, while innovation adds new features to the product (Porter 69). Operation efficiency strategy explores the way in which internal process is carried out in order for the company to perform better than the competitors in the industry. Operational efficiency strategy is also aimed at enhancing consumer and staff satisfaction, enhancing quality and productivity and minimizing marketing time. Improved operational efficiency can also be achieved through better decision making and improved managerial activities (Kemerer 76).
Customer-oriented strategy focuses on consumer satisfaction. High level of competition in the industry and recognition of the importance of the consumers is the basis of this strategy. Internet systems that support the management of customer relations are particularly efficient in realizing the above goal. This is because they are able to offer personalized service to the clients (Callon 43). Time strategy focuses on the management of time as a resource to the company’s benefit. Information systems hasten organizational operations and thus save a lot of time. Strategic information systems are based on philosophies that are time bound, for instance, just in time and first mover advantage (Hemmatfar, Mahdi and Marziyeh 163).
Time is also a source of competitive advantage since it dictates response to internal and external shocks, for example, changes in market conditions. Time can also act as a barrier to new entrants in the market. Companies that are already established in the industry and using information technology to offer excellent services are very hard to compete with (Hemmatfar, Mahdi and Marziyeh 163). Lock in key stakeholders’ strategy, that is, clients and suppliers enhance loyalty and trust. It also prevents them from being absorbed by the rivals. In addition, this strategy minimizes consumer bargaining power. Last but not least, increase switch costs strategy discourages clients or suppliers from going to the rivals due to economic reasons (Porter 70).
SIS and Value Chain
SIS as already been defined is a system gives an organizations a competitive edge over rivals in the industry. Michael Porters five forces analysis is universally used to assess competitive edge of different companies within a particular industry. This is a comprehensive model that explores the company’s position in a given industry. The five forces as identified by porters include: threats of new entrants, bargaining power of suppliers and customers, threat of substitutes, and the rivalry within the industry. Porter’s five forces analysis not only offers a significant foundation for strategic analysis but also examines the viability of the industry to come up possible course of actions (Porter 3).
However, Porter’s theories are not bound to information systems, though they are used by a number of researchers to involve ISs technologies (Hemmatfar, Mahdi and Marziyeh 164). According to Porter, there are two fundamental issues with regard to competitive strategy. These issues are the structural attractiveness of the industry and a company’s relative position within the industry (91). The above two subjects are vibrant, but cannot be used to make strategic decisions. In addition, they are influenced by activities from both sides. Porter’s model provides a methodology for measuring mean profitability of an industry within a specified time. This analysis is used to estimate a company’s relative position in the industry and its competitive advantage (Porter 92).
According to porter, low cost producer, product differentiation and focused marketing are the main types of competitive advantage (93). A company has a competitive advantage if it is capable of distributing its products or services at a relatively lower cost than its rivals in the industry. If the products or services are of high quality, the company will enjoy high profit margins. Competitive advantage can also be realized through product differentiation. Differentiation makes the products or services exceptional and desirable, thus earns good returns (Porter 92).
According to Hemmatfar, Mahdi and Marziyeh, Porter’s theories can be used to develop competitive strategies and to show how information technology can improve the competitive advantage of a company. The two types of competitive advantage, that is, a low cost of delivery and product differentiation are rarely achieved simultaneously. Porter also argued that competitive edge is attained through a scope-based strategy. Therefore, it is important to explore a company’s activities and constricted their competitive scope to estimate its position in the industry. Competitive advantage can be estimated by focusing on a narrow competitive scope (Porter 93).
The theory of Value Chain
The value chain analysis links business operations and the company’s competitive edge/position in the industry. Therefore, value chain analysis estimates the value each activity attaches to the products or services (Porter 95). These activities are divided into two: primary activities and secondary or support activities. These activities are unswervingly linked to the construction or distribution of goods and services. They are further categorized into five subgroups namely: inbound logistics, outbound logistics, operations, marketing and sales, and service. Each of these subgroups is connected to the support group which enhances their efficiency and effectiveness. The support group include: procurement, technological development, human resources management, and infrastructure (Porter 96).
The value chain structure assists in examining particular activities through which a company can create value and competitive edge. The principle objective of this type of analysis is to create value that surpasses the cost of distributing products or service, hence yielding returns. The primary activities are very essential in developing a competitive edge. These activities are facilitated by supporting activities. The support activities are frequently considered as expenditures, but in many companies they have been used to develop a competitive edge, for instance, to create a cost advantage through novel management of information systems. In addition, information technology is ubiquitous throughout the value chain (Porter 97).
As already been mentioned, low cost leadership is one of the two types of competitive advantage cited by Porter. The cost leader avails products or service at a considerably lower cost. It tries to maintain a considerable and sustainable cost gap with other rivals in the industry. The cost advantage can be attained through better positioning of the principal cost drivers, which include strategic information systems. Cost leadership can lead to supernormal profit if the cost leader enjoys a nearly monopolistic position in the industry. Nonetheless, the supernormal profits can only be maintained if the cost leader continues to deliver high quality products (Porter 97).
Strategic information systems connect a company to the value chain of its principal stakeholders. This link is achieved through the value web. A value web can be defined as a collection autonomous companies that use information technology (IT) to synchronize their value chains to create a common product. These webs are flexible and can adjust to changes in the industrial environment. Companies can a pull together markets and expertise. It lowers the cost of delivery and therefore generates good returns. Last but not least, these companies must work together because their systems are tied together.
Internet and Competitive Advantage
According to Hemmatfar, Mahdi and Marziyeh, since the internet has transformed the way of doing business, it has also affected the level of competitiveness in the current business environment (165). Porter argued that the internet does not interfere with business structures and operations. It is only a tool used in probing for a competitive edge. In other words, the internet is hardly ever a competitive advantage. According to Porter, most successful companies are those using the internet as a complimentary tool (64). He concluded that internet increased competition, which negatively affects returns on investment (Crowther 90).
The major contradiction of Porter’s point of view is the numerous benefits of internet. For instance, the internet has increased accessibility to information, thus minimizing trouble of purchasing, promotion, and delivery. The internet has also provided a platform for doing business; at the moment, sellers and buyers can transact business without difficulty. However, it is harder for organizations to capture these benefits as earnings.
According to Kemerer, the internet has increased the level of competition in the global market (94). It expanded markets, increased rivalry, minimized product differences and increased pressure on local prices. In addition, it has reduced barriers to new entrants by eliminating extensive physical promotional activities. Nowadays, all an individual or a business proprietor needs is a computer to advertise products or service online. The internet has also provided technology in the form of cloud computing which has significantly helped to drive business processes at a lower cost (Kemerer 95).
The internet has increased substitute products and services. The internet has brought together people from all over the globe and from different walks of life. As a result, it has facilitated the sharing of information and ideas. This has helped in the creation of new products and services (Kemerer 95). Internet enhanced consumers’ bargaining power. There are very many products available on the internet. As a result, customers have numerous options to choose from. Therefore, companies need to focus most of their attention on consumer satisfaction and provision of exceptional services. It has also increased suppliers bargaining power. Suppliers currently can benefit from reduced barriers to entry and eradication of the middlemen (Kemerer 96).
Since information has come out as a means of integration and achieving a competitive advantage, the concept of information system is increasingly becoming popular. Information technology can be used to support numerous strategic goals, including development of innovative software, transforming business operations, linking business with its key stakeholders, minimizing cost, and acquiring competitive intelligence among others. The paper explored various opinions and studies carried out by various experts in information systems, strategic information systems, competitive advantage, and Porter’s theories of competitive advantage. From these literatures we can conclude that one of the most important elements in the current information age is strategic information system. Strategic information systems have numerous benefits for individuals and organizations.
Information systems play a very significant part in all aspects of business operations, for instance, decision making process, recruitment process and distribution of goods and services. However, the greatest hurdle faced by many organizations is the implementation of strategic information system and sustainability of the competitive edge accrued through it. Implementing SIS is an intricate task given the scale and elaborate nature of the systems. In addition, SIS is designed to identify the position of the company in the industry and how it copes with externalities. Strategic information systems can be used to restructure and accelerate the response time to external shocks and assist in attaining a competitive edge over the rivals. Last but not least, successful implementation of information systems requires human capital, technology and excellent structures.
Ahlemann, Frederik. “Towards a conceptual reference model for project management information systems”. International Journal of Project Management 27.1(2009): 19-30. Print.
Callon, Jack. Competitive Advantage through Information Technology, New York: McGraw Hill, 1996. Print.
Crowther, Peter. “The five competitive forces that shape strategy”. Harvard business review 5(2008):78-93. Print.
Diez, Esther and Brian McIntosh. “A review of the factors which influence the use and usefulness of information systems”. Environmental Modeling & Software 24.5 (2009): 588-602. Print.
Hemmatfar, Mahmood, Mahdi Salehi and Marziyeh Bayat. “Competitive Advantage and Strategic Information Systems”. International Journal of Business and Management 5.7 (2010):158-169. Print.
Kemerer, Chris. Information Technology and Industrial Competitiveness: How IT Shapes Competition, Boston: Kluwer Academic. 1997. Print.
Laudon, Ken and Jane Laudon. Management information systems: Managing the digital firm, New Jersey: Prentice Hall, 2012. Print.
O’Brien, James and George Marakas. Management Information Systems, New York, USA: McGraw-Hill, 2011. Print.
Porter, Michael. Competitive strategy: Techniques for analyzing industries and competitors, New York: Free Press, 1980. Print.