Information Systems, Enabling Technology or Strategic Weapon?

Introduction

Numerous studies have revealed that business transformation is an essential tool for business organizations to enhance competitive measures, business capability, and modern business techniques. Organizations need transformation irrespective of business sectors and geographical location, business transformation not only enhance the quality of business, but it also improves overall business viability. Recent advance in information technology has been identified to transform businesses to sustain competitive advantage. (Peruma and Pandey 2008).

Typically, information communication technology has become a strategic asset that enhances organizational market capability. It should be noted that in the present global system, virtually all businesses are facing tight competition from all corners of the globe. Thus, to beat the competitors, there is a need for organisations to change business process and implement up-to-date technology that can improve business process and market viability. (Yang, Lee, and Lee (2007).

Analysts reveal that recent information technology advancement has played a critical role for firms in redesigning business process with high improvement in the customer-management relationship. The new knowledge created by information technology, not only improve organisational productivity in the highly competitive market environment, IT also facilitates inter-organisational relationship. (Lee 2007).

This argument extends line of research by examining the competitive forces that affect organisation in a business environment. Moreover, this paper reviews the academic literatures to ascertain the operational and strategic values the information systems can add to organisations. Finally, this research examines the impact of Information Technology on Sainsbury and the extents IT has been able to improve the company strategic advantages.

To understand the impact of IT on organisational capabilities, it essential to gain insight into competitive forces that affect organisational market environment.

The competitive forces that affect the organizational environment

The model of Micheal.E.Porter is used to illustrating the competitive forces that affect organisational environment. Porter identifies five competitive forces that affect organisation’s market environment. In a single industry, organisation is faced with intense competition that affect the profitability and attractiveness of that industry to new entrants.

In porter’s analysis, the threat to new entrants has been identified a major tool that affect the competitive environment. If it is very easy for new entrants to enter an industry, the more cutthroat competition that organisation will face in the industry. It should be noted that an industry that is very difficult to enter, an organisation will face light competition in that industry. The factors that limit organisational entrants to the industry include:

• Scarcity of resources.
• High Fixed cost.
• High cost of changing to other companies.
• Government law. and regulations. (Investopedia, 2009)

Apart from this, Porter also identifies the bargaining powers of buyers as the determinant factors that an organisation can face in a competitive environment. In a competitive environment, buyer bargaining power may exert pressure on the prices and the strength of buyers to bring down the prices, and may keep off the competitors to enter an industry because this normally affect profitability of an organisation in a given industry. (Porter nd).

For example, if a buyer can place enough impact on an organisation, these customers may hold substantial power on an organisation. In addition, if a customer believes that he can do without a product or a customer is not comfortable with a price. These factors may affect organisation not to finding enough buyers for its products. (Investopedia, 2009).

In addition, the bargaining power of supplier is another competitive force that affects organisational environment. For example, suppliers can decide to raise prices of given products or reduce the quality of the products. If suppliers are dominated by few companies, they may pose a credible force to form industry and become monopoly. Thus, an organisation might identify its strength from the number of suppliers in the market. (Porter nd).

Moreover, availability of substitute is another factor that affects a given organisation in a business environment. The likelihood that customers can easily find substitutes for a given product, this can pose a serious threat to an organisation. For example, if a price of beverage increases, consumer can easily switch to coffee. The more substitutes for a given product, the more this is likely to affect an organisation in a given market environment.

Finally, competition or rivalry also affects organisations. The intensity of competition between existing firms my affect profits of an organisation. Firm that faces intense competitions in an industry can generally realise low returns because the costs to fight competition are very high. To fight competition, firm needs to increase spending on advertisement and R &D to beat the competitors. (Investopedia, 2009).

With identifications of competitive forces that affect organisations in the business environment, Information Technology has been identified as a powerful tool, which organisation can use to gain sustainable competitive advantages. The literatures are reviewed to examine the impact of Information Technology in achieving competitive advantages.

Literatures review on the impact of IT on organisations

Studies reveal the strategic impact of IT on corporate improvement. Granados, Gupta, Granados, Gupta, and Kauffman (2007) provide an analysis on how an emergence of IT can transform an organisation. The authors argue that with advent of internet, many organisations have been able to use IT tools to improve the market information and market structures. It should be noted that IT facilitates electronic markets where there are transparency of information which have led the improvement in the financial markets. Contemporary business methods have facilitated the systems where there are intra-companies business activities and with rapid flow of information through ICT, the institutional forces have been able to play important role in the creation of unbiased and transparent electronic capital markets. (Granados, Gupta, and Kauffman 2007).

However, Perumal, and Pandey (2008) take different argument by examining the impact of IT business renovation. From the authors’ perspectives, IT has renovated business perspectives, and IT business renovation has been able to add sustainable competitive advantages to most firms. It should be noted that Information Technological initiatives have able to alter ways firms do businesses. Thus, business renovation through IT system transforms businesses, and enhances the financial benefits to most organisations. For example, IT system has been able to help organisations to design and invent new products that are in high demand by customers around the globe. These initiatives have been seen to aid organisations to meet their goals by improving the market performances, and these have helped to improve the shareholders’ values. It should be noted that in a modern business model, organisations have realised that IT has aided management in achieving organisational agility, process improvement and systematic process automation. The authors advise that for businesses to improve internal transformation, corporate organisation needs to integrate IT in their business models. (Perumal, and Pandey 2008).

Due to the benefits of IT in the enhancement of strategic advantages, organisation should integrate IT into the strategic decision. Lee (2007) provides statistics to show how

the organisations have been able to use IT as the most important tools in business operations. Since 1990, IT has been dominant forces in the decisions of US corporate organisation. For example, in 1990, IT accounted to 8% of US capital investments and increased by 14% in 1993. Added to this, approximate $260 billions was invested in the e-commerce infrastructure in 2000, and in 2004 , business-to business and business –to consumers value approximately $6.8 trillions. Thus, with increasing awareness on IT on business transformation, IT has been viewed to revolutionise the ways corporate organisation compete, and creation of new business opportunities (Lee, 2007).

Johnson et al (2007) support the arguments provided by the previous papers reviewed. Studies reveal that organisations are responding to the opportunities provided by Information Technology especially in the ways IT has been able enhance the efficiency of management accounting information systems, and functions of accountants.

Despite the potential benefits IT offers the organisations, there are scholars that still argue that Information Technology can serve as threat to corporate organisations. McFadzean, Ezingeard and Birchall (2007) provide an argument on how IT can become strategic risks to corporate organisations. Although, the authors agree that the IT has become a weapon that improves organisational competencies, and has become increasing importance within organisations. Nevertheless, many organisations have not been able to implement effective security measure to protect their database. The authors argue that it is the responsibility of the management to implement effective information security and many organisations are still ignorant on how to carry out effective information securities for their data warehouse. It should be noted that it is the managements’ responsibilities to ensure the information security of their customers in order prevent unauthorised access to sensitive data. Sometimes, management takes advantage of insufficient security on the corporate data to embark fraudulent behaviours on their investors. The fraudulent acts perpetuated by board makes the US government to pass Sarbanes-Oxley Act to enhance ethical business practices.

The potential risks of IT to corporate organisation have also been supported by Gasser and Gasser, Haeusermann (2007). The authors argue that the widespread of Information Communication Technology has created new types of challenges to the business organisations, and have become the associated risks to business environment. The associated risks such as security, IP, and consumer protection are becoming key challenges specified organisations such as banking industry. It should be noted that the assurance of IT security is very important to organisations. Threats such as virus, worms, hacking and data thefts can jeopardised organisational integrity because these potential threats can erode the benefits IT to firms. It should be noted that data privacy is very important especially to large-sized organisations in order to protect the customers’ data.

Added to the risks of Information Technology, Lee (2007) argues that some organisations have not yet realised the real values of IT in the improvement of their strategic advantages. The reasons are the results of intangibility of IT on financial returns. Many organisations belief that IT can not be quantifiable, and there are sometimes problems of evaluation and Organisational performance. The argument reveals that benefits on IT investments depend on organisational characteristics. Thus, the author suggests that before corporate organisations initiate IT investments, firms must evaluate the IT performance before making an IT decision.

The risks of IT on an organisational success made the spending on the computer hardware to decline in the last few years. Data provided by International Data Corporation (IDC) reveal that there have been decline in the spending of hardware globally by -3.3% since January 2009. There is also estimation that there is decline in the IT revenues for the US-based IT suppliers. (International Data Corporation, 2009).

The arguments presented revealed that for the organisation to fully benefit from Information Technology, firms must adapt to the competitive forces that may affect their success as discussed in the case of Sainsbury plc in the next section.

Impact of Information Technology: Case of Sainsbury plc

Sainsbury plc has a long history of being one of the oldest retail stores in the UK. The first store was opened in 1869, and today, Sainsbury plc control chain of 504 supermarkets, 319 store, and Sainsbury bank. In addition, Sainsbury offers 30.000 products in its chain of stores in the UK. At present Sainsbury values approximately £123.5 billions in 2006 and it is estimated that there will be 2.8% of annual increase in net profit annually that will make Sainsbury to value £141.5 billion by 2012.

Impact of IT on Sainsbury efficiency

Sainsbury has been able to achieve the full benefits of UK customers by integrating Information Technology in the strategic decisions. Realising the impact of IT system and infrastructure for the enhancement of Sainsbury’s competitive advantages makes

Shapland Chief Financial Officer of Sainsbury to declare that “the Group is reliant on its IT infrastructure in order to trade. A failure in these systems could have a significant impact on our business”. Thus, Sainsbury launches online delivery to reach its numerous customers. It should be noted that Sainsbury plc realises that Porter models are powerful forces that affect an organisation in a competitive environment, Sainsbury also realises that it is facing stiff competition from other grocery stores, such as Tesco, and other retail stores in the UK. Thus, to beat its competition, Sainsbury plc has made use of another channel to reach its customers For example; Sainsbury makes use of internet delivery to reach its numerous customers. Gone are the days where customers will have to travel to long distance before buying things at Sainsbury stores. With online ordering system, customers can easily order for Sainsbury products from anywhere and the products are delivered without customers leaving their house. There is even free delivery for customers that order items of £100 or more in the UK. This strategy makes Sainsbury to cover 85% of UK post codes and reach 90,000 customers each week, which reveal the 40% in sales increase than the previous years. The online shopping also make Sainsbury to achieve its potential, for example, through online delivery system, records show that Sainsbury sales grew by 43% in 2007. Apart from delivering food online to it customers, Salisbury has also launched selling of non-food online, and the service provides customers choice. With company dedications in launching IT system, these serve as advantages to shareholders who able to receive the email notification about the current issues of the company. The results of IT has also increased the revenues of Sainsbury yearly especially sine 2005 when Sainsbury has lunched online sales of its products (See Table 1). (Sainsbury 2008).

Table 1: Impact of IT on Salisbury annual revenue

Source: (Sainsbury 2008).

Thus, Salisbury case has revealed that firm can use IT to achieve sustainable competitive advantage.

Discussions

The analysis in this paper shows that Information Technology has become potential weapon, which firms can use to gain competitive advantages in the global market. Formerly ,before the advent of information technology, most firms mainly rely on local market to survive and if an organisation fails in a country where it is located, this organisation will find it very difficult to break-even, and results have made many organizations close down in the 1970s and 1980s. However, with advent of IT in the 1990s, many corporate organizations have been able to launch their products online and be able to reach customers worldwide. Meanwhile, organizations that are unable to compete in the local markets are now able to reach customers anywhere in the world. This put the Porter model discussed earlier in a weak position. The bargaining power of the sellers is not the issues to consider in a competitive business environment. With methods of making sales through the internet, Firms can reach their potential customers anywhere in the world. For example, Gillette razors blade can not compete in its home country before the advent of Information Technology, however with advent of IT, Gillette has been able to reach markets in any part of the world. In Africa, Asia, Latin America, Gillette has been able to launch its products in these markets. With IT applications, firms has been able analyse to reduce technological uncertainties with the use of computing software such as spreadsheet. (Lee 2008)

Thus, business organisation have been able to use software to design products that suit their customers need and many firms have been able to achieve substantial financial gains by integrating IT in the business process. (Lee 2007).

Although, there may be risks that organisation might face with the advent of IT, nevertheless, information technology has potential gains than risks that firms might face from it.

Nevertheless, for organisation to achieve sustainable competitive advantage in the global environment, it is essential to adopt IT policy in its strategic decisions.

This research enhances the knowledge of business owners, managers and entrepreneurs on the powerful benefits that Information Technology provides to a corporate organisation.

References

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