Chapter 8

Does IT Matter?

Learning ObjectivesUpon successful completion of this chapter, you will be able to:• Define the productivity paradox and explain the

current thinking on this topic.• Evaluate Carr’s argument in “Does IT Matter?”• Describe the components of competitive advantage.• Describe information systems that can provide

businesses with competitive advantage.

The Productivity Paradox

• Erik Brynjolfsson (1991) CACM, “The Productivity Pardox”

• Studies on investment in IT and productivity showed that gains in productivity were not realized.

• Why?– Mismeasurement of outputs and inputs– Lags due to learning and adjustment– Redistribution and dissipation of profits– Mismanagement of information and technology

IT Doesn’t Matter

• Nicholas Carr (2003), “IT Doesn’t Matter”, Harvard Business Review.

• As IT becomes more ubiquitous, it also becomes less of a differentiator.

• Technology is so readily available and software is so easily copied, that new tools will not give companies sustained competitive advantage.

IT Doesn’t Matter (contd.)

• Carr suggests:– Technology is a commodity and should be

managed like one.– Low cost: Wait until it is cost effective to adopt.– Low risk: Adopt slowly so other companies can

take the risks associated with new technologies.– IT should operate as a utility in a

company. Good service with minimal downtime.

Competitive Strategy

• Thinking comes from Michael Porter of Harvard

• Late 70’s developed 3 models to help us think about strategy.– 5 Force Model– Value Chain– Generic Strategies

Competitive Advantage

• Creating and sustaining superior performance.• When a company can sustain profits that

exceed the average for the industry.• Example: Google’s

Porter’s Generic Strategies

• Cost: Compete by offering the lowest prices.• Differentiation: Product or service that offers

unique value.• Focus: Narrow or Large, focus on an entire

industry or a small market segment.

Generic Strategies

Samsung Galaxy Walmart

Big 5REI

The Value Chain

Value Chain (contd.)

• Inbound Logistics: raw materials brought into the company

• Operations: any part of the business that converts raw materials into products and services

• Outbound Logistics: Getting the productsand services to the customers.

Value Chain (contd.)

• Sales/Marketing: Entire buyers to purchase products and services.

• Service: Support of products and services that customers have purchased.

• Firm Infrastructure: All the organizational functions that support the business. Technology connected/supported.

• Human Resources Management: Recruitinghiring, and retaining employees.

Value Chain (contd.)

• Technology Development: Advances and innovations adopted to add value to the company.

• Procurement: Acquiring raw materials for production/operations.

The Value Chain Model & CRM

Graphic from Docstock.com

Enterprise Resources Planning

Supply Chain Management

Customer Relationship Management

Porter’s 5 Force Model

Industry Rivalry

Threat of New Entrants

Threat of Substitute Products

Bargaining Power of Suppliers

Bargaining Power of

Buyers

Government Regulation

5 Forces

• Bargaining Power of Buyers (customers): Ability of the customers to put the firm under pressure to reduce prices.

• Bargaining Power of Suppliers: Power of suppliers to control prices.

• Intra-Industry Rivalry: Competitiveness of a given industry. Threat of New Entrants: Profitable industries attract new competitors. (Amazon producing TV shows)

• Threat of substitute products and services: Other entities that consumers can use, instead of your product. (bike instead of car)

Entry Barriers• Creating a barrier to entry to would be

competitors.• Southern California Edison– Utility, captive market– To open an electric company would require a massive

infrastructure• Bar– Liquor license is a cost that might prohibit entrants

• Online mega-store like Amazon– New entrants cannot compete with branding,

infrastructure and supply chain

Switching Costs

• Switching Cost – The cost of a customer to switch to another product or service.

• Used to reduce the threat of new entrants and substitute products.

• Increasing Switching Costs– Deals for Staying with You (loyalty programs)– Memberships– Contracts

Strategies and Forces

Using Information Systems for Competitive Advantage

• Business Process Management Systems – Control of processes gives competitive advantage

because ___. • Electronic Data Interchange– Automation of the value chain gets products to

market quicker.– Allows for integration of partners in the value chain.– Allows for flexible value chain because of

automation.

Competitive Advantage (contd.)

• Collaborative Systems – Easier ways for people to collaborate in work and processes.– Google Drive– MS SharePoint– Cisco WebEx– Atlassian Confluence– IBM Lotus Notes

Competitive Advantage (contd.)

• Decision Support Systems– Assist with decision making at all levels,

particularly semi-structured.– Data Analytics– Internally: Having centralized data can give

opportunities to see what the data is telling you.– Externally: Data sources can inform

strategic decisions about new technologiesand your industry.

Summary

• Defined the productivity paradox.• Evaluated Carr’s argument in “Does IT

Matter?”• Reviewed the components of competitive

advantage.• Reviewed how information systems that can

provide businesses with competitive advantage.