Sustainability: Advantage Through Superior IS/IT Systems (Examination of Schwab)
2009/// Filed in: Management IS
Schwab initially achieved its leadership position as a discount brokerage firm due to their superior technological capability, IS/IT know-how, and the scalability of their original IS/IT infrastructure. As explained earlier, social factors such as the alignment between the firms competitive strategy and IS/IT strategy, capability for rapid prototyping an product development, and agility also played a significant role in their earlier success. In fact, Schwab's investment in IT hardware and software back in 1995 was moderate.
As we have already pointed out in a previous post ... In the specific context of achieving sustainable competitive advantage using IS/IT, Carr has 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.03). He 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 its 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. According to Carr, given that the value of IS as a strategy resource has been vanishing, he recommends firms nowdays to 1) spend less (research shows 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. While these recommendations of cautious IT investments are intended for the current environment, it is remarkable that Schwab's initial E-business strategy back in 1995 was implemented with a minor IT capital investment by using the existing infrastructure.
Brown and Hagel III (2003) agree that some business nowadays may have overestimated the strategic value of IT, significantly overspent on technology, and recognize the importance of managing IS more rigorously to reduce capital investment requirements and operating costs (Brown.03). However, 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 are of the position that while differentiation is not in IT itself, it is in the new practices and services that IT/IS enable to create that make it critical. Consequently, while Schwab was able to achieve competitive advantages through superior IS/IT capability, it is unlikely that IT alone will be the source that enables the firm to sustain its leadership position.
As we have already pointed out in a previous post ... In the specific context of achieving sustainable competitive advantage using IS/IT, Carr has 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.03). He 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 its 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. According to Carr, given that the value of IS as a strategy resource has been vanishing, he recommends firms nowdays to 1) spend less (research shows 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. While these recommendations of cautious IT investments are intended for the current environment, it is remarkable that Schwab's initial E-business strategy back in 1995 was implemented with a minor IT capital investment by using the existing infrastructure.
Brown and Hagel III (2003) agree that some business nowadays may have overestimated the strategic value of IT, significantly overspent on technology, and recognize the importance of managing IS more rigorously to reduce capital investment requirements and operating costs (Brown.03). However, 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 are of the position that while differentiation is not in IT itself, it is in the new practices and services that IT/IS enable to create that make it critical. Consequently, while Schwab was able to achieve competitive advantages through superior IS/IT capability, it is unlikely that IT alone will be the source that enables the firm to sustain its leadership position.