Competitive Advantage

A) Discuss how Porter??™s competitive forces model helps businesses use information systems for competitive advantage. [25%]
B) Discuss the ongoing debate regarding the competitive advantage granted by Information Technology. [75%] Competitive Advantage is the ability gained through efficiency and resources to perform at a higher level than other competitors in the same industry or market and it usually occurs when an organisation either acquires a way to use available resources more efficiently or they have access to special resources that others do not. Here Porter??™s competitive forces model suggests that firms who have competitive advantage in the long run do better in terms of revenue growth, profitability and productivity growth, all of which ultimately turn into higher stock market valuations than their competitors. Therefore it is important for the firm to know and anticipate the factors that can affect the strategic position of the firm by applying appropriate information system to stay competitive and survive in the industry or market. Information systems can be defined as a system that collects, processes, stores and distributes information to support decision making and control in an organisation. In addition, information systems also help managers and workers analyse problems, visualise complex subjects and create new products. In Porter??™s competitive forces model, the strategic position of the firm and its strategies are determined not only by competition with its traditional direct competitors but also by four forces in the industry??™s environment which are new market entrants, substitute products, customers and suppliers. As a result, firms use information systems and technology strategies to effectively counter these five forces to gain competitive advantage by maintaining low-cost leadership, product differentiation, focus on market niche and strengthening customer and supplier intimacy (??).
In Porter??™s competitive forces model, one way for a firm to stay competitive and gain competitive advantage in the long run is to use information systems and technology to achieve low operational costs and therefore lowest prices. The classic example is Wal-Mart where an efficient customer response system automatically sends orders for new merchandise directly to suppliers as soon as consumers pay for their products. This efficient system allows Wal-Mart save money on maintaining large inventories of goods in its own warehouses. By applying information systems the firm could enjoy increased sales, revenue and profit through increased productive efficiency and thus lower prices. Firms also use information systems for product differentiation where manufacturers produce products and services that are customised and personalised to fit the customer??™s preference. In other words, differentiation looks to make a product more attractive by contrasting its unique qualities with other competing products. Successful product differentiation creates a competitive advantage for the firm as customers view these products as unique or superior and therefore it attracts more customers. Another way of obtaining competitive advantage is to focus on market niche where the use of information systems enables the firm to focus on a specific market and serve this narrow target market better than competitors. Information systems support this strategy by producing and analysing data for sales and marketing techniques. It allows the firm to analyse customer purchasing patterns, taste and preferences closely so that they can focus on advertising to smaller target markets. Lastly, strengthening customer and supplier intimacy is another strategy that can be applied by firms to gain competitive advantage. Strengthening customer and supplier intimacy through various methods allows the firm to construct strong linkages to gain both customer and supplier loyalty to the firm. This way the customers or suppliers are more likely to remain purchasing the original products rather than switching to substitutes, therefore firms can also gain competitive advantage by constructing a strong intimacy with customers and suppliers.
However, many argue that the competitive advantages strategic systems do not necessarily last long enough to ensure long-term profitability because competitors can retaliate and copy strategic systems and thus competitive advantage is not always sustainable. Furthermore, globalisation means the changes in market condition, customer expectations and technology are even more rapid and unpredictable.
Systems that were originally intended to be strategic frequently became tools for survival and are required by every firm to stay in business nowadays and consequently, successfully using information systems to achieve a competitive advantage is challenging and requires precise coordination of technology, organisations and management.

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