How do information systems apply to competitive strategies for business?
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How do information systems apply to competitive strategies for business?
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Information systems (IS) have allowed business to leverage the advancement in the technology to achieve success. With the use of IS, the cost for a business on a certain task is reduced (Clemons, Reddi & Row, 1993). This can be validated by one of the example provided by our professor in the classroom discussion about Nepal police shifting from paper-based system to a computerized system which uses IS. That shift streamlined the process better enabling efficient search and storage of information while also significantly reducing the overall cost and human resource required for the task.
Business can now automate the task with the use IS. Let’s consider a scenario to understand this well. Often Serious Technologies has installed several stations to monitor the amount of rainfall around Nepal and its in different countries of its presence. The company needs to ensure that all the stations are working. The only thing to do without IS would be to go manually and check it which would incur significant cost and human resources. But now, with IS a system is in place such that it checks if the system is sending data or not ever minute or 1,440 times a day. If it does, it’s functionally fully, if not, something isn’t right and need a fix. Something which would have otherwise required people to be there physically to resolve the issue can now all be done within seconds with the help of IS.
Shopping is another sector of business where IS is changing things. Alibaba with the use of IS has come up with a new model called new retail combining the best of both online and offline experience. This is with the concept of digitalizing all commerce. It’s changing the way even the most traditional store operates. Just in implementation in China in this instance, it shows the power the information system can play for a small retail business to a big shopping mall which have all started adapting to this. Not only in shopping but every field is seeing a difference and is adapting to the new technology to get ahead of the competition. Organizations have started making use of GPS tracking on their vehicles and with the use of an application, staff can see where the shuttle is and plan their schedule accordingly such that they don’t have to spend time waiting for it to arrive or in confusing if it has already left.
Businesses with the website often track the user records with the use of Google Analytics, Alexa and others to get an idea of the demographic, time, age and several other factors of the visitor which they use to formulate business strategies. With the analysis, they even maintain a different landing page for people from different countries tailored to each nationality.
Supermarket makes use of information system to understand the buying habits of their customer. They then use the data to formulate strategies, change the aisle locations and even place items near the payment counter to encourage action.
Information System is changing how business operates in the current age and time by revolutionizing every industry. There’s hardly any industry where information system is not used. It has with it brought new innovation and changed the landscape of the businesses (Gurbaxani & Whang, 1991). All those have enabled the business to get ahead of the competition by leveraging the positives of IS to bring innovation and creativity to the workflow.
Clemons, E., Reddi, S., & Row, M. (1993). The Impact of Information Technology on the Organization of Economic Activity: The "Move to the Middle” Hypothesis. Journal Of Management Information Systems , 10 (2), 9-10.
Gurbaxani, V., & Whang, S. (1991). The impact of information systems on organizations and markets. Communications Of The ACM , 34 (1), 59-62.
According to Porter (1979), the competition of a business is analyzed on the basis of threat of new entrants, threat of substitute products, bargaining power of suppliers, bargaining power of buyers and industry rivalry. These variables determine the attractiveness of any industry along with the competitive intensity. The firm should pay attention on these factors along with the impact of information system on each variable while developing competitive strategy.
Because of information technology, business models are changing, new strategies are being formulated and new business models are being created (Wallace, 2015). Thus the competitive strategy should be formulated based upon these factors. The company may choose any of the following strategies to distinguish itself from the competitors applying information systems:
The firm can eliminate unnecessary costs related with the manual paper works and human resources by adapting information system. Automation helps in achieving efficiency by reducing operational costs because of which similar products can be offered at lower rate. This results in the reduction in cost of customers or suppliers and increment in cost of competitors. The firm can establish itself as low cos cost procedures. Dell computer used his strategy to gain competitive advantage. It customized the computers as per the requirement of customers by developing an information system to record the order of the customers which allows the customers to buy computers at lower price.
The information system can be applied in differentiation strategy as well. We can focus on a niche market and offer something different including new features to rise above our competitors. Moen Incorporation, a faucet brand in North America asks for the design with customers via online that makes it different than the competitors.
Innovation strategy includes offering something new including information technology. It helps to create new market by changing the business processes. Offering unique products and creating demand for it can help in gaining competitive advantage. Amazon used this to its benefit by providing online shopping experience to the customers.
With the use of information system, we can plan for growth and extension of existing business. The technology can be used for integration and diversification of the product as a competitive strategy. This strategy has been used by Walmart where they place order through global satellite network.
Information system allows building alliance with customers, suppliers, competitors, consultants and other firms through mergers and acquisitions. Information system facilitates virtual interactions to build alliance that can help in gaining competitive advantage for a business. The automatic inventory replenishment by suppliers in Walmart is an example of how alliance can be built through use of information systems.
Porter, M. E. (1979, May). How Competitive Forces Shape Strategy. Harvard Business Review, 59(2), 137-145.
Wallace, P. (2015). Introduction to I
Wallace (2015), in their book Introduction to information systems, Information systems potentially play their most valuable roles when they are integrated closely with strategy and tied to the major initiatives that will help achieve strategic objectives.
Competitive advantage, which is anything that gives a firm a lead over its rivals, can be gained through the development and application of innovative information systems. Increasingly, these systems are a core feature of a company’s strategic vision. Indeed, that vision must be shaped to some extent by what information systems can achieve today and what is possible for the future.
Michael Porter (1979) identified three basic strategies that are most likely to lead to success:
1. Low cost leadership strategy
This means offering a similar product at a lower price compared to competitors. To be successful, the company has to cut every gram of fat in the value chain using information systems to automate and streamline processes.
A relentless search for ways to reduce operating expenses and achieve efficiencies pervades this strategy. For example, the research revealed that the existing online shoppers in Kathmandu are price sensitive (Malla, 2018). Daraz’s enormous success as a low cost leader in retailing comes especially from its IT-supported supply chain. They believe on excellent value-for-money, large assortment of original products, fast delivery and easy returns are Daraz signatures. This is also possible because the ecommerce are free from the burden of expensive rent, and unused of employee for sales person.
2. Product differentiation strategy
This involves adding special features or unique add-ons for which customers are willing to pay more. This strategy tends to reduce threats from substitute products and erects barriers to new entrants.
For instance; if we HR industry in Nepal then merojob.com has its first mover advantage. Since their inception in 2009, they have turned out to be number one jobs provider in Nepal with 100 million+ page views with 2.5 million+ progressive visits every month, created 150,000+ success stories and registered 350,000+ job seekers in their database. They have been offering 20,000+ employers promote their employer brands to jobseekers and advertise diverse opportunities to over a million candidates inside Nepal and abroad.
Generally, employer used to post their vacancy for the newspaper ads before 2009. But, this has gradually decreased to their add on paper due to their presence or say active presence on web, mobile apps and social media has added value to both employee and employer (Merojob, n.d).
3. Focused strategy
Differentiating the product or service for a particular market niche is called a focused strategy.
For instance, Sherpa Adventure Gear, in 2003 by Tashi Sherpa, weaving together the latest patterns and technology with the rich heritage and time honoured beliefs of Nepal. From the highest heights of the Himalayas, they promise on saying that they lead the world of mountaineering with warmth, good will and honest temper (Schaffer, 2013).
Here, they explain their existence for the mountaineering, trekking, travelling and exploring the world. They also weave into every garment a rich heritage of time honoured beliefs and humility. The niche market is profitable for them rather they planned for all demography.
Malla, S. (2018). Online Shopping Behavior among young consumers in Kathmandu, Nepal.
Merojob. (n.d.). About us. Retrieved from merojob.com/about-us/
Porter, M. E. (1979). How competitive forces shape strategy. Strategic Planning: Readings, 102-117.
Schaffer, G. (2013). The disposable man: A western history of Sherpas on Everest. Outside Magazine.
According to Porter (2008), there are five competitive forces that shape every business and market. These five forces are The rivalry of competitors within the industry, Threat of new entrants into an industry and its markets, Threat posed by substitute products which might capture market share, Bargaining power of customers, and Bargaining power of suppliers.
To survive and succeed a business must develop and implement strategies to effectively counter the above five competitive forces such forces help to carry out an analysis of the organization’s current position ranging from the level of the competitor it faces, its profitability and attractiveness. According to O’Brien & Marakas (2011) organizations can follow one of the five basic competitive strategies these are cost leadership, differentiation, innovation, growth, and alliance.
Cost Leadership: Organization can use the information system to reduce the cost of the business process and to lower the cost of customers or suppliers. Using online business to consumer and B2B models, E-procurement systems to reduce operating costs. In Nepal have many online stores like daraz.com, sastodeal, and Hamrobazzar etc. These online store doesn’t need a showroom and seller representative to sell the product and they also have a flexible payment system. You can pay from your e-Sewa Account. So it reduces the cost of operation and product as well.
Differentiation: Organizations can use the information system to develop differentiated features or to reduce competitor’s numbers. Using online live chatting systems and social media networks to better understand and serve customers to create information at real time. In Kings has Social site King’s communication which gives the overall information about our daily academic activity like class routine, seminar, and other information. Similarly, our Prof. Rajib sir shared his experience when the earthquake had happened and all communication network was down and his team developed Nepal police twitter account for emergency response. These two examples show, By using technology how we make our service or product different than others.
Innovation: Organization can use information systems to identify and create new products and services. Innovation driven and enabled by new technology (IT) and system (IS) has affected business process and firms operations resulting in a substantial change in productivity and efficiency (Bughin & M. & Johnson, 2012). For example, the recent development of E-Commerce is a sign of how companies have prospect brought by widespread adoption and use of the Internet (Chui, 2011). How Amazon and Alibaba are doing really good business. Another example, In Australia the Commonwealth Bank strives to be the market leader in online banking with its Net Bank offering real-time banking and introducing innovative app like Kaching (including Facebook payment) (Manyika, 2016).
Growth: Organizations can use the information system to expand domestic and international operations to diversify and integrate into other products and services i.e. establishing global internet and global operating platform.
Strategies Alliance: Organizations can use information systems to create and enhance relations with partners via applications, such as developing virtual organization and inter-organizational information system. Slack is the popular example of intra - organization communication and GitHub is popular for code sharing tools in the software business.
New technologies and their use change the competitive dynamics of industries which changes the buyer’s power, the supplier’s power, new entrants, substitute products and existing rivals.
Bughin, J. C., & M. & Johnson, B. (2012). The next step in open innovation. McKinsey Quarterly , 1-8.
Chui, M. &. (2011). 'Inside P & G’s digital revolution. McKinsey Quarterly , 1-11.
Manyika, J. (2016). Google’s views on the future of business: An Interview with CEO Eric Schmidt. McKinsey Quarterly , 12-16.
O’Brien, J. A., & Marakas, G. M. (2011). Management Information Systems. USA: 10th Edition, McGraw-Hill, New York.
Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard Business Review, 52-54.
Information system (IS) has become the most sought after thing by business today. The value of information has a direct correlation to the growth and success of a business as it provides data of the consumer purchasing habit and choices. Based on this managers can determine strategies for taking strong decisions. "Information technology is changing the way companies operate. It is affecting the entire process by which companies create their products. Furthermore, it is reshaping the product itself: the entire package of physical goods, services, and information companies provide to create value for their buyers. (Porter & Millar, 1985)”
Understanding value is to understand the perception of the consumer. How much are they willing to pay for a product? Understanding this perception will give the manger a strong data to base his product price. To maximize the profit, the managers must meet the consumer’s expectation, be able to differentiate from its competitor and still stay about its weighted average cost of capital.
To be a market leader above other competitors, a company should either have a great product, a good operation management or customer influence. IS helps to manage the logistic and inventory management. Amazon and DHL are some examples of companies that have been able to outperform other competitors. They have only been able to accomplish this through good data received from proper. "The system has reduced DHL’s support costs, as customers can track order delivery without having to contact the company directly, says Allan Butterworth, vice-president of IT at DHL Supply Chain’s consumer sector division. Using advances in technology is crucial to staying ahead of the game in the logistics industry, he says. (Hall, 2011)”
Information system provides valuable data of both your product and that of the competitor’s. Comparison between these two data can help pin point the gap. The gap and the customer demand and expectation from the product can help companies differentiate their product over the other. For example, a stock market investor can compare between two companies balance sheet which they can access from the website of the companies and decide on whom to invest in. Similarly, Dabur real juice can find out competitors such as Cocacola and their product demand, the demography and based on this data can target segment in market and improve their product or increase supply in certain places more.
These are some of the ways in which IS can help in developing competitive strategies.
Hall, K. (2011, March 9). DHL launches real-time information to improve supply chain. ComputerWeekly.com.
Porter, M. E., & Millar, V. E. (1985, July). How Information Gives You Competitive Advantage. Harvard Business Review . Retrieved from hbr.org/1985/07/how-information-gi...