Are Information Systems a Source of Substainable Competitive Advantage?
2007/// Filed in: Management IS
In his seminal 2003 Harvard Business Review article "It Doesn't Matter" Nicholas Carr made the argument that while information technology has become the backbone of commerce, the importance of IT and information systems (IS) as a strategic resource capable of gaining sustainable competitive advantage has diminished. Carr's acknowledges that IT is critical to today's competitive environment. However, he makes the point that because IT/IS has become so essential to competition it is inconsequential to strategy. This conclusion is based on the assumption that what makes a resource a source of sustainable competitive advantage is not is ubiquity but its scarcity, that is, a company gains an edge over its competitors by doing something that they can't do or have. Since IS have become commonplace (i.e. data storage, data processing, data transport, CRM, etc), standardized, and available to all competitors as common adopted technologies, its potential as a source of differentiation has diminished. In summary, IS are becoming a commodity and an expense of doing business. In the 1990s , the US Department of Commerce's Bureau of Economic Analysis estimated that 30% of the capital expenditures of US companies went to IT. By the end of the decade it had reached 50% to amount over a $2 trillium a year in IT-related expenses worldwide.
After making the case of how the value of IS as a strategy resource has been vanishing, Carr provides three recommendations regarding IS management: 1) spend less -studies how that companies with the biggest IT investment do not post the best financial results, 2) follow, don't lead -Moore's law guarantees that the longer you wait to make an IT purchase, the more you will get for your money, and you will be investing in IT capabilities that become more homogenized as opposed to proprietary, and 3) focus on vulnerabilities and not opportunities.
Brown and Hagel III (2003) responded to Carr's paper in a letter to the editor entitled "Does IT Matter" HBR (2003). The authors acknowledged the importance and value of Carr's article and agreed that business may have overestimated the strategic value of IT, significantly overspent on technology, and recognized the importance of managing IS more rigorously to reduce capital investment requirements and operating costs. They emphasize that while in many cases IT (especially standardized IT) is diminishing as a source of strategic differentiation, IT matters a lot (i.e. it does matter to the point of being critical). Brown and Hagel III provide a detailed response to Carr's paper and conclude that while differentiation is not in IT itself, it is in the new practises that IT/IS enable.
The value of IT can be studied in terms of the three main schools of strategy: Harvard School (Porter, Five Forces, 80s), London School (Hamel/Prahalad, Resource View, 90s), and MIT Sloan School (Hax,Delta Model, 21st). For instance, in terms of Porter's five forces industry structure model, the strategic use of IS can help build barriers of entry or put in place barriers of entry for competitors, it can help increasing the switching costs for customers and decrease their bargaining power, enable companies to create substitute products, and limit the bargaining power of suppliers. The RBV emphasises how firm-level IS dynamic capabilities may translate into sustainable competitive advantage by generating "generic lead time" (time taken by a competitor to duplicate an IS system, application or IS-based product), "competitive asymmetry" (the ability of the competitor to replicate the first mover's system", and "pre-emption potential" (the ability of the first mover to pre-empt the retaliation by the follower (Feeny, Ives, 90).
In my opinion the best conceptual framework to analyze the value of IS is the Delta Model proposed by Arnoldo Hax (MIT Sloan). As a unified strategic framework developed after the mainstream adoption of Internet, it provides specific strategic options beyond the Best Product Strategy such as Total Customer Solutions and System Lock. Within the wide range of potential strategies the Delta model points out the potential strategic value of IT/IS as enabling technologies to promote boding (with customers, complementors, suppliers, etc) and lead to a range of potential strategies such as "redefining the customer experience" (e.g. Saturn, Barnes & Nobel, Startbucks iTunes), "customer integration" (Dell, Mathworks), "dominant exchange" (Google, YouTube, iTunes), etc.
References:
[1] Carr, N (2003), "IT Doesn't Matter" Harvard Business Review.
[2] Brown, JS & Hagel III, J (2003), "Does IT Matter" Harvard Business Review
[3] Laudon (2004), "Managing Information Systems - Managing the Digital Firm"
[3] Hax, A (2001), "The Delta Project"
[4] Porter, M (1980, 1985), "Competitive Strategy" & "Competitive Advantage"
[5] Barney, J (1991), "Firm Resources and Sustained Competitive Advantage"
[6] Feeny, F, Ives, B (1990), "In Search of Sustainability: Reaping Long-Term Advantage from Investments in Information Technology"
After making the case of how the value of IS as a strategy resource has been vanishing, Carr provides three recommendations regarding IS management: 1) spend less -studies how that companies with the biggest IT investment do not post the best financial results, 2) follow, don't lead -Moore's law guarantees that the longer you wait to make an IT purchase, the more you will get for your money, and you will be investing in IT capabilities that become more homogenized as opposed to proprietary, and 3) focus on vulnerabilities and not opportunities.
Brown and Hagel III (2003) responded to Carr's paper in a letter to the editor entitled "Does IT Matter" HBR (2003). The authors acknowledged the importance and value of Carr's article and agreed that business may have overestimated the strategic value of IT, significantly overspent on technology, and recognized the importance of managing IS more rigorously to reduce capital investment requirements and operating costs. They emphasize that while in many cases IT (especially standardized IT) is diminishing as a source of strategic differentiation, IT matters a lot (i.e. it does matter to the point of being critical). Brown and Hagel III provide a detailed response to Carr's paper and conclude that while differentiation is not in IT itself, it is in the new practises that IT/IS enable.
The value of IT can be studied in terms of the three main schools of strategy: Harvard School (Porter, Five Forces, 80s), London School (Hamel/Prahalad, Resource View, 90s), and MIT Sloan School (Hax,Delta Model, 21st). For instance, in terms of Porter's five forces industry structure model, the strategic use of IS can help build barriers of entry or put in place barriers of entry for competitors, it can help increasing the switching costs for customers and decrease their bargaining power, enable companies to create substitute products, and limit the bargaining power of suppliers. The RBV emphasises how firm-level IS dynamic capabilities may translate into sustainable competitive advantage by generating "generic lead time" (time taken by a competitor to duplicate an IS system, application or IS-based product), "competitive asymmetry" (the ability of the competitor to replicate the first mover's system", and "pre-emption potential" (the ability of the first mover to pre-empt the retaliation by the follower (Feeny, Ives, 90).
In my opinion the best conceptual framework to analyze the value of IS is the Delta Model proposed by Arnoldo Hax (MIT Sloan). As a unified strategic framework developed after the mainstream adoption of Internet, it provides specific strategic options beyond the Best Product Strategy such as Total Customer Solutions and System Lock. Within the wide range of potential strategies the Delta model points out the potential strategic value of IT/IS as enabling technologies to promote boding (with customers, complementors, suppliers, etc) and lead to a range of potential strategies such as "redefining the customer experience" (e.g. Saturn, Barnes & Nobel, Startbucks iTunes), "customer integration" (Dell, Mathworks), "dominant exchange" (Google, YouTube, iTunes), etc.
References:
[1] Carr, N (2003), "IT Doesn't Matter" Harvard Business Review.
[2] Brown, JS & Hagel III, J (2003), "Does IT Matter" Harvard Business Review
[3] Laudon (2004), "Managing Information Systems - Managing the Digital Firm"
[3] Hax, A (2001), "The Delta Project"
[4] Porter, M (1980, 1985), "Competitive Strategy" & "Competitive Advantage"
[5] Barney, J (1991), "Firm Resources and Sustained Competitive Advantage"
[6] Feeny, F, Ives, B (1990), "In Search of Sustainability: Reaping Long-Term Advantage from Investments in Information Technology"