Information Technology and the New Environment: Developing and Sustaining Competitive Advantage

By Chan, Peng S.; Heide, Dorothy | SAM Advanced Management Journal, Autumn 1992 | Go to article overview

Information Technology and the New Environment: Developing and Sustaining Competitive Advantage


Chan, Peng S., Heide, Dorothy, SAM Advanced Management Journal


Competitive advantage accrues to the firm that is best able to deliver the right product or service to the marketplace at the right price and time. The question is, how can information technology (IT) contribute to the firm's timely development and delivery of new products and services? How can the firm maintain the resulting competitive advantage? This paper will address these issues by focusing on two elements:

(1) how successful firms incorporate IT into their corporate and business strategies to achieve competitive advantage; and

(2) the organizational structure that supports and flows from the strategy.

In the following section, competitive advantage is defined in general terms, and IT's contributions and pitfalls vis-a-vis the firm's competitive position are addressed. Then, the process of integrating competitive strength, the environment, and the firm's strategy is illustrated.

Information Technology and Competitive Advantage

Any time a product or service creates more value (both symbolic and in its attributes) for the consumer than a competing product or service, it has a competitive advantage. For example, when IBM introduced the Selectric typewriter it provided both types of value for buyers and users. There are two approaches (not necessarily mutually exclusive) to using IT to achieve competitive advantage:

(1) as a significant product or service sold or provided in the marketplace to outside customers; and

(2) as organizational support for a product or service which may not be visible to the consumer.

IT as a Product or Service

With technology-based products or services, it is often difficult to maintain a competitive advantage, because competitors copy successful entries. This may be particularly true of IT. For example, the product life expectancy in many high-tech industries, such as semiconductors or personal computers, is short, generally between three to five years. Firms in these industries expect to introduce an upgraded product or a significantly new product with very short development times, before the competition catches up or the next generation of products cannibalizes their profits. Firms using this "differentiation" strategy (Porter, 1980) expect to gain competitive advantage from the creativity, unique design, quality, customer support, and research associated with their products or services. Other firms within this industry might be "followers" with lower-cost alternatives (Porter, 1980).

A firm pursuing a cost minimization strategy might use state-of-the-art purchased parts or services to create and sell the firm's final product line. This strategy avoids the requirement for investment in R&D associated with new products and related processes. However, if a purchased part makes a significant contribution to the performance of a product or service, then the firm is vulnerable to variations in supply. This is an especially critical concern when the part is also an innovation.

For example, Compaq Computer's "clone" strategy is based on the firm using off-the-shelf parts to construct its PCs and independent dealers to provide sales and service. Compaq has been successful at using other firms' technology, its stock consistently performed better than the Dow Jones Computer Index until mid-1991. However, this strategy does make the firm vulnerable to parts shortages. For example, when Intel was unable (or unwilling) to supply its new 386 chips and flat-panel screens for Compaq's new laptop, early 1991 shipments were delayed. Even when Compaq owns stock in a supplier, it does not guarantee parts delivery. Compaq owns 21% of Conner Peripherals and was wait-listed for some super-small hard disks (Bartimo, 1991). Clearly, although the firm is pursuing a "cost minimization" strategy with some success, it is risky.

In today's intensely competitive marketplace, firms in the IT industry must compete on both differentiation and cost for long-term survival and competitiveness. …

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