The organisation today in all industries throughout the world is now dependant on their information systems. For example telecommunication, media, entertainment, retail and more, where the product is further being digitised depends on the software applications of information technology. The element of dependency is known as e-commerce, this provides an organisation with new ways of conducting business.
This has provided a virtual selling point for organisation to trade on-line, known as the internet. The application of IT is not only assisting in old business trends but creating new innovative opportunities to allow businesses to gain a comparative competitive advantage over existing businesses (Ward & Peppard, page 1)
The report looked at two areas of what ICT is and what it is used for:
* How the role of ICT has changed and the ways organisations now conduct business
* The strategic opportunities offered by ICT and how ICT has provided added value to organisations.
When using the models I used examples of the airline industry to illustrate how ICT provides value and how it provides strategic opportunities.
The use of electronic databases, journals and text books will provide prime examples of how ICT is seen in organisation. The information gathered will be used as evidence to back up any theory that is stated within the report.
Recommended text books and further readings will be used to provide theory about ICT in general and when identifying strategic opportunities the text books will provide theory about strategic models and how they are used to identify strategic opportunities.
Strategic models include:
* Mcfarlen’s Strategy Matrix
* Porters Five Forces
* Porter Value Chain.
The models provided sufficient evidence that they can be used to assist with the development of IS/IT and help position the company where they need to be. By analysing the internal & external factors it provided evidence that it allows management to understand their current position and then to look at where they need to be. Also using the value chain they can compare with the competition and see where they are and see how they can get to the same stage if it is beneficial.
Journals provided fairly up to date information about how the value chain should be used and the benefits it can bring to the organisation.
How ICT has changed the way businesses now conduct business.
An information system has move on rapidly in the last 50 years or so. In 1950 IS started of as a technical change and then entering into the 60’s & 70’s IS became managerial control. The 80’s & 90’s saw IS as the core activities of the business using Decision & Support Systems and entering the 2000 and 2005 IS has entered into the digital firm (Laudon & Laudon 2002, page 17)
Organisations and managers cannot afford to ignore the effectiveness of information systems. IS plays a critical role in helping managers decide, manage employees, and increasingly shape what products are produced and how (Laudon & Laudon 2002, page 14)
IS and organisation influence one another. The IS must be aligned in accordance to the organisation needs and the organisation needs to adapt to IS to obtain the benefits, one major benefit being comparative competitive advantage (Laudon & Laudon 2002, page 68)
During the mid 1990’s organisations seen the introduction of E-business & E-commerce.
E-commerce opened up a new market for organisation by providing virtual selling; this is known as the internet. It enabled the organisations to advertise existing products and create new products that where easier to sell via the internet, products that came from abroad etc.
Using E-commerce provided a rapid exchange of business documents using something called EDI (Electronic Data Exchange). EDI enables business partners to reduce the costs of exchanging business documents such as orders, invoices and price lists. Following EDI is financial EDI which is known as electronic payment through the internet (Ward & Peppard, page 5)
With electronic payment it provided a hassle free zone for consumers to purchase their products and not have to leave the comfort of their home.
E-commerce provided a new route for organisation in which this could market products in existing and developing countries and to advertise their products to new consumers. Take the retail industry for example; Sainsbury, Tesco, Iceland and more have now developed a new way of shopping via the internet. The use of ICT provided a way of providing a service, for example, to disabled people to have the opportunity to do shopping as they are restricted to their homes etc, individuals and families who live some distance from supermarkets or live in cities where it is to much hassle and would rather pay a supermarket to deliver.
E-business concentrates on the internal operations within organisations using internet and browsers. In E-business there are the ‘pure plays’ dot.coms which is often the way to reach directly to the consumer. Unless the products are digitizable companies do not exist totally on virtual worlds. Retail, manufacturing industries have the physical appearance of products which over powers the virtual logistics. What many organisations try to implement is a ‘bricks and ‘clicks’ strategy that allows the internet to enter the mainstream of the organisations operations.
The potential benefits of IS/IT are known as E-business and E-commerce which created a tremendous hype of these two concepts. In 1999 it was announced that by implementing an E-commerce strategy it would increase the companies share price. Quoted from (Ward & Peppard, page 6) ‘Subramani and Walden examined the impact of E-commerce announcements by organisations and found that the E-commerce lead to a cumulative abnormal increase in shareholder value. Even changing the companies name to incorporate ‘com’ label had a significant increase in the share price and trading activity’.
1. Micro Economic Model IS can be seen as a factor of productions that operates with no limitations and can be substituted for capital & labour. As IS/IT cost decline this is substituted for labour which historically has been a rising cost, but in this model IS/IT should result in less middle managers and clerical workers as IS/IT can substitute the human work force.
2. Transaction Cost Theory, this states that firms can grow larger as they can conduct market place transactions internally making it more cheaper than they can with the external market place
3. Agency Theory, this can reduce the numbers of internal management costs (Laudon & Laudon 2002, page 76)
Identifying strategic opportunities offered through ICT and how it adds value
The value chain provides a way for managers to assess competitive advantage by determining the strategic advantages and disadvantages of the full range of activities that shape the final offering to the end user. These activities include not only internal activities but external activities (e.g., activities at the supplier, distribution and disposal/recycling levels). In other words, the firm is viewed as part of an overall chain of value-creating processes focused on the customer. The value chain can be used to audit the firm’s current activities as well as developing improvements for the future (Management Accounting: Magazine for Chartered Management)
Below is an example of a value chain for an airline industry which looks at the internal environment and how ICT effectively contributes to gaining competitive advantage.
The airline industry became dependant on ICT to create strategies in operational management. ICT was implemented for wide range departments as seen in the value chain. ICT was being used to develop and manage their business model as well as to monitor the external environment like competition, undertake revenue analysis, forecasting etc. With the airline industry being on a large scale it found through internal analysis that ICT was vital when monitoring their SBU’s and what markets they should be penetrating. ICT is currently supporting routes, crew planning, and choice of air craft through the use of ICT (Information Management Journal)
What was found was the value chain operates in a systematic way to provide an analysis of the firm’s activities and highlighting the main attributes that will satisfy the customer needs? In addition to customer-focused analysis, it would be beneficial to compare the company’s value chain along with the competitors (Management Accounting: Magazine for Chartered Management)
Following this, the next stage involved the designing and developing of the company’s future value chain. It is vital for the companies to create a new value chain to generate a competitive advantage over their competitor’s value chain. The objective of using the value chain was to build a value package which customers will perceive to be better than those offered by competitors. It is vital when designing such a package that the firm relates the costs of activities to the customer’s perception of the value created by them. The Managers can use the value chain to look at customer perception as a way of valuing the customer’s needs and not just relying on their own customer value. This path should be followed on a regular basis and managers should benchmark this against their competitors. By comparing using the value chain it will allow the business to alter their value packages to increase customer expectations (Management Accounting: Magazine for Chartered Management)
(The following has been abstracted from a journal) Segmentation analysis: Analysing the structural characteristics of different industry segments can reveal the competitive advantages or disadvantages of different segments. A firm may use this information to decide to enter, exit or reconfigure a segment, or embark on cost reduction/differentiations (CMA Magazine)
(The following has been abstracted from a journal) Problems with the value chain: Analysing costs and differentiation advantages through the value chain can present significant data problems. Lack of conventional accounting rigor should not deter a manager from championing value chain analysis. It offers an excellent opportunity for collaboration among accounting, engineering, production, marketing, distribution and service professionals in a strategic planning process which can provide insights important for the firm’s growth and survival (CMA Magazine)
One criticism of the value chain is it was designed for the manufacturing industry and retail as these both have ‘physical goods’. However even though the value chain is still applied to a large majority of industries it does really represent what the business does or its relationship with customers and suppliers (Ward & Peppard, page 265)
Introduction to e-commerce and how it helps gain competitive advantage
The introduction of the internet will provide a comparative competitive advantage (providing strategic opportunities) these advantages can only be achieved through the success of management identifying the need for change and using the value chain to identify the current position, they can achieve the following:
1. Communications: email, customer service, customer focus groups, product feedback from customers;
2. Personnel: employee searches, job searches, industry-specific interest groups for professional development;
3. Sales/Advertising: low cost marketing and advertising, e-commerce;
4. Intelligence: on-line research for tracking competitors and industry trends, information about customers and markets (Wendy Currie, Page 112)
Below are examples of companies and how ICT has allowed them to maintain its leadership in small package delivery service and how it has added value:
UPS (United Parcel Services)
UPS invested $1 billion per year in ICT which currently increased their customer service and at the same time keeping costs low and streamlining its overall operations. The introduction of hand held computers allowed UPS to do the following:
1. Drivers could capture customer’s signature, along with pickup, delivery, and time-card information.
2. The drivers then connect the DIAD to a transmitter in their trucks and the information about the customer is transmitted to the head office.
3. Package and tracking information is then processed and stored in the main frame computers for later use.
4. The information can be accessed world-wide as proof of delivery to the customer or respond to customer queries.
Through the hand held device it has provided added value not only to the company but to the customer. The main value for the company is by being able to keep their existing customers happy by delivery rapid response to customer queries and providing them with a website to access their delivery information and track the product through the website. Strategically it is allowing UPS to stay number one in parcel service even with high levels of competition (E-learning around the world, February 2001)