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If we look at how the industry has progressed in past century i.e. from Early Mechanization to Steam Power & Railways to Electrical & Heavy Engineering to Ford Type Mass Production to Information & Communication to mass customization to Holistic (Cook 000) we can infer that as companies become more global the complexities of managing and delivering, quality and on-time at the right cost become an important issue of the millennium. Through his competitive forces model, Michael Porter tries to convey that product differentiation is key to a company's success. Information systems can be leveraged to come out with unique highly differentiated products. This is important since many me too (Kotler 00) with their low cost advantage can sweep the market in no time. So products or services have to be easily distinguishable and at the same time they shouldn't be easily duplicable. Ulph and Vulkan (000) propose that consumers differ with respect to their most desired products, and firms choose where to locate in product space and how much to charge each consumer. The past decade has found out and implemented potential of IT to conquer the product space. Some of the important IT applications towards product design and implementation are R&D databases, Professional work stations, electronic mail, custom engineering systems, and integrated systems to manufacturing (Clarke 14).
Product differentiation is important since it imposes switching costs over buyers and as a result may serve as an entry barrier. In addition, a continuous process of product differentiation may produce an additional cost advantage over competitors and potential entrants, through intellectual property protections, such as patents, and the cost of imitation. By coordinating linked activities, an enterprise can reduce transaction costs, gather better information for control purposes, and substitute less costly operations in one activity for more costly ones elsewhere. Coordinating linked activities is also an important way to reduce the combined time required to perform them. Hence co-ordination is increasingly important to competitive advantage. (Clarke 14) And Information system has the biggest role to play in this type of coordination. So the link that we can see here is that Information Systems lead to better coordination which in turn leads to better information which helps in better product design and implementation which in turn leads to product differentiation. Thus we see that a high degree of intangible value is added to the organization. Thus though we see the investment in IT in company's balance sheets but their returns being intangible are mostly hidden. Below we consider two examples of how IT has been used to differentiate and thus gain competitive advantage.
Satyam is India's premier network and ecommerce company. It is mostly into data/internet services, retail internet access, and e-consulting services. Sifys total subscriber base grew to 550,000 as of September 0, 001. Sifys average revenue per unit, or ARPU, has started rising after several quarters of continuing decline. In addition, margin pressure is easing with decline in bandwidth costs. Revenues from Sifys franchised network of cybercafes - Iways - grew by approximately 0% in Oct quarter as compared to June quarter. . The number of cybercafes grew to 50 from 47. Iways are operational in five cities in India. (sifycorp.com 00) What Satyam is uniquely done is to build a central database of all its members (i.e. who pay for browsing in any of the Satyam Iway cybercafes. Each member has a user ID and a password protection, so that he is protected from the manipulations of the caf' operator. This is a unique differentiation as compared to local internet cafes across Indian cities. Once a member has paid up the amount he can be assured of no more hassles. Local caf' owners cannot duplicate it since they do not have a nation wide network or a central database.
Cisco Systems is the largest seller of routers and other internet components to the internet providers and networking companies. Net plays a central role in the way this networking company conducts its business. Nearly 85% of orders, an average of $7 million a day, are placed on the companys Web site. Cisco has all its technical data on the web so that even its employees use the website to find specifications and manuals. The company has tools that guide a prospective customer over website on how and what to purchase a router. A customer can virtually assemble a router. The software even gives guidance and corrections regarding correct assembly. At the same time Cisco doesn't stock goods. Cisco has developed an electronic supply-chain model that is used by its manufacturing plants worldwide, 0 of which are not owned by Cisco. It is this strength of Cisco that has made it uniquely inimitable. Other networking companies who have grown organically unlike Cisco cannot match the quickness of communication and delivery or the unique experience of purchasing on the web. Again because of its sheer size and frequency of the technical support calls it receives, Cisco has been able to compile a set of FAQ (frequently asked questions) on its website. This has enabled Cisco to handle 80% (i.e. 4 million requests monthly) of its technical support requests over web thus saving $50 annually. ( Kotler 00)
Information Systems for Focused differentiation
Focused differentiation is the strategy followed by firms to deliver specialized products and services to certain niche markets so that they deal only with a part of the consumer spectrum or the market. These are markets where the firm has some advantage, so that it can provide a better value proposition to its customers than its competitors. As a result, not only are competitors in this segment reduced, new entrants are also discouraged.
"SISs are information systems which firms with competitive products and services that give it a strategic advantage over its competitors in the marketplace." (O'Brien, 00). The use of strategic information systems for focused differentiation starts right from the aspect of identifying the key market segments which to target for the specialized product or service that is to be introduced, to enhancing the value of the product for the target customer.
Marketing starts and ends with the consumer that's where the utmost importance of knowing the consumer lies. Information systems which help us know and predict the market behavior helps us to respond better and faster to the market demand. Consumer preferences change, therefore we need to identify continuously and accurately where our markets lie and streamline our operations accordingly. The case of Sears illustrates this point.
Sears was the largest retailer in the United States for some 40 years after WW II. It diversified in the '80s to provide services like banking to its middle class consumers. This tore Sears away from its core business that of retail sales. Meanwhile, discount stores, department stores and specialty retailers provided stiff competition. By 11, retail sales accounted for only 1% of Sears' revenues. Strategies which worked well with other stores bombed at Sears. Catalogue sales stagnated, and in 1, it stopped issuing its famous "Big Book" catalogue. 11 of its stores were closed down, eliminating 50,000 jobs.
To help Sears turnaround, the Chairman and CEO, Arthur C. Martinez ordered the disparate databases of the company to be combined, to find out who the consumer at Sears really was. At that time also, Sears was heavily computerized, with databases of 60 mn Sears credit card holders. From these, he found out that the biggest shoppers at the stores were women aged 5 to 55 with an average family income of $40,000, buying everything from skirts to appliances. This made Martinez to realign Sears from trying to sell everything and focus on seven core types of merchandise, with more attention to women's apparel. It further consolidated information on 0 mn households to provide specifically targeted database marketing. Today, any sales figure by area, store or even item is at the managers' fingertips. Sears' buyers can replenish hot-selling merchandise almost right away.
Identifying and targeting the right set of customers for advantageous use of one's organizational competencies has the twin benefits of a) reducing costs, and b) achieving higher returns on investment. A direct mailing scheme, for example, is more effective if the company can pick and chose people with specific preferences from a database, who can be targeted with special promotions. Capital One, the world's largest provider of credit cards, used integrated systems managing large volumes of data to continuously test pricing combinations, new product offerings, etc for consumers with limited credit history. Airlines can use IS to target last minute businessmen and executives with higher priced tickets. The growth of the internet, with the help of IT incorporated in the design of the e-commerce sites, has made it very simple to capture consumers' shopping preferences. This is used to target specific advertising and promotion, for example Amazon.com may come with a "special" low discount scheme for a new marketing book for a regular buyer of books of that category.
References
1) James A. OBrien (14). Management Information Systems Managing Information Technology in the E-Business Enterprise. 5/e, New York Mc Graw Hill
) Laudon, K.C. and Laudon, J.P. Additional Cases Can Sears Reinvent Itself? In Essentials of Management Information Systems Retrieved Mar., 00. From http//wps.prenhall.com/bp_laudon_essmis_5/0,,1556-,00.html
) Jhang, M.J. and Lado, A.A. (001) Information systems and competitive advantage a competency-based view. Technovation 1(). 147-156.
4) The Open Learning Programme in Entrepreneurship (000). Information Technology & New Modes of Communication. In Unit 11 Current Business Aspects. Retrieved Mar 10, 00. From http//www.technopreneur.net/timeis/timis000/Edi/Unit11/Chapter8.htm
5) David Ulph and Nir Vulkan. Electronic commerce and competitive first-degree price discrimination. Technical report, University College, London, 000. Referred on 11//00 URL http//www.ecn.bris.ac.uk/www/ecnv/welcome.htm
6) Hal R. Varian. University of California, Berkeley. July 001. Economics of Information Technology Referred on 1//00 URL www.sims.berkeley.edu/~hal/Papers/ mattioli/mattioli.html
7) John Cook, John Cook & Associates. The Use of Technology to Gain Competitive Advantage in the EPDM Industry. Referred on 11//00 URL http//www.jcassociates.freeserve.co.uk
8) Philip Kotler. (00). Marketing Management. New Delhi Pearson Education
) Roger Clarke (14). The Path of Development of Strategic Information Systems Theory. Referred on 1//00 URL http//www.anu.edu.au/people/Roger.Clarke/SOS/StratISTh.html
10) Satyam Infoway Limited. Referred on //00 URL http//www.sifycorp.com
11) Cisco Systems, Inc. Referred on 1//00 URL http//cisco.com
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