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In this assignment, I am going to explain how technology can help or hinder an organisation to gain a competitive advantage and how Porter's value chain explains this. Technology can be seen as the application of knowledge to production, usually through invention and product and process innovation (Wetherly and Otter, 2011). Duncan et al (1998) defined competitive advantage as the result of ''an enduring value differential between the products or services of one organisation and those of its competitors in the minds of customers''. Porter's value chain explains how an organisation is able to do this using technology, and I am therefore going to discuss the benefits and limitations of this model.
The key factor in establishing national competitiveness is the ability to constantly increase productivity and the main way to do this is by creating the environment in which technological improvement occurs (Porter, 1998). In competitive terms, value is the amount consumers are willing to pay for what a business offers them (Porter, 2004). When a firm is able to offer consumers greater value, either by lower prices or greater benefits (which justify higher prices), they are likely to gain an advantage over their competitors. Porter's value chain suggests that within an organisation, there are 'primary activities' and 'support activities' which aim to offer the consumer value that will exceed the cost of these activities, consequently leading to a profit margin.
Primary activities consist of;
Inbound logistics: involves receiving, storing and handling raw materials
Operations: transforms inputs into the final product (Callon, 1996).
Outbound logistics: Collects stores and physically distributes the product to customers.
Marketing and sales: identifies markets and what makes consumers want to purchase their products or services.
Service: deals with the customer support such as repair.
Support activities include:
Procurement: function of purchasing inputs.
Technology development: found in mostly every activity. It consists of a range of activities that can be broadly grouped into efforts to improve the product and the process (Porter, 2004).
Human resource management: consists of activities such as training and recruiting.
Firm infrastructure: consists of a number of activities which includes finance and quality management.
Each of these activities within Porter's value chain can contribute to a firm's relative cost position and creates a basis for differentiation, for example, a cost advantage may be a low cost distribution system, enabling the company to cut costs (Porter, 2004), or if a firm has greater access to raw materials or production technology, it could allow it to achieve cost advantages over its competition (Papp, 2001). An example of differentiation could be a superior and unique product design making it attractive to customers leading to the creation of a unique selling point. Porter (2004) states that an important point to make about the Value Chain is that it is applicable to any industry, each having the same five basic activities and the four supporting functions.
However, there are also criticisms of the value chain. For instance, cost management, which comes under Porter's support activity as procurement, is now such an important aspect within an organisation in order to gain a competitive advantage, and arguably should be within the primary activities rather than support (Morden, 2007). Firms need to be able to give the same level or exceeded level of value, but at a lower cost, than their competitors. "Success at cost management can have a phenomenal effect on the value of a company.'' (Groth and Kinney 1994, p.52). Technology plays an important role in this, as Groth and Kinney state; innovations in IT continue to lower the cost of gaining knowledge about costs (1994).
Another model that explains how a business can gain competitive advantage is Porter's five forces. This suggests that the rules of competition are built-in to five competitive forces (Porter, 2004). These five forces are; entry of new competitors, threat of substitutes, power of buyers, power of suppliers and rivalry among existing competitors. Technology can then be used amongst each of these to help an organisation gain a competitive advantage. For instance, coupons and promotional deals can be used via social media websites such as Facebook and Twitter to catch consumer's attention and attract them to their product; this can help increase the buyer's power of that particular product or service. To reduce the bargaining power of suppliers, technology can be used to help businesses locate alternative sources of supply through internet websites to find B2B marketplaces such as alibaba.com (Use Of Technology, n.d.). Technology can also be used in the form to create entry barriers against competitors; this then makes it more difficult for competitors to enter that same market. Google have used this technology to their advantage and created the new social network amongst their original search engine called 'Google Plus +' to gain a competitive advantage over Facebook. Businesses are then able to use this to create profiles, and this profile will be shown within the search results of Google (Use Of Technology, n.d.).
Porter (1985) emphasizes the importance of technology in creating a competitive environment for an organisation. However, for technological change to be successful, it is the combination of entrepreneurial enterprise and factors of the external environment that are significant (Wetherly and Otter, 2011). Technological innovation is becoming increasingly important in many organisations for globalisation and rapid technological progress as well as amongst other factors, which combine to increase the competitive strength in almost all industries. It has become one of the key determining factors of a company's performance (Rothaemel, 2008) and according to Michael Porter, can change the rules of competition (Porter, 2004) therefore should be one of the company's main focuses.
The integration of technology into the operations of an organisation is vital to its successful management (Swann, 1993). It is a source of new products and new production methods that can both cut costs and enhance revenues (Tushman and Anderson, 1986). Due to technology, it is a lot easier and quicker for businesses to use mass customisation as well as mass production. Manufacturers have struggled to meet the wants and needs of their customers without losing some of the efficiencies and profits gained through mass production. Developments IT have increased the chance of mass customization being implemented within businesses (Istook, 2002). This can help the business gain good customer relationships by meeting their exact wants and needs.
The internet is a fantastic example of advanced technology that is helping businesses gain competitive leads. According to eMarketer, approximately one and a half billion of us use social media, companies are therefore are able to use this build consumer relationships to gain a competitive advantage (Tarkoff, 2012). This enables companies to spot gaps in the market and develop unique products and services before their competitors. ''Being a first mover in respect to a new productâ€¦ can potentially create competitive advantage by restricting competitors' options in the same industry.'' (Papp, 2001, p.28). This links to Porter's reasoning to create entry barriers, making it difficult for competitors to enter this market successfully without a better, more advanced product, which would take up a great deal of time and money due to research and development, assuming that the original product was a success and gaining high amounts of revenue. Franko (1989) showed that R&D and the expenditures on R&D is an important determinant of corporate strategic performance and gaining a global competitive advantage.
The Internet has also helped businesses out dramatically with the expansion and popularity of online shopping, which is now so simple because of technological developments. More people are now shopping online, whether it is for physical goods electronics or groceries, or music downloads (Johnson, 2011). Today, the lives of consumers are generally very hectic, so everyone is looking for quicker and more efficient transactions, one being shopping. Consequently, consumers more inclined to shop this way, rather than going to the physical shop, since they can purchase a range of products without even moving from their seat at home. In January 2013, online sales accounted for 10.1% of all retail spending. In the food sector in particular, online sales increased 27%, which meant that now, 3.7% of total food sales are made online (BBC News, 2013). This may have been a result of drastic weather; however, if it wasn't for the advancements in technology, this would not be made available. Etsy, a New York based online marketplace which launched in 2005, sells everything from clothes and jewellery to digital cameras and other electronics. "Our whole business is technology," says Chad Dickerson (n.d), the company's chief technology officer. His explanation of why is simple. "The best way to achieve scale is to be on the internet, and to be on the internet you have to be a technology company, and you have to build software." (Dickerson n.d. quoted in Johnson 2011). Another successful example is Domino's pizza. As early as 2001, 4% of pizza sales were made via the internet. (Mintel, 2001). By 2002, they had 85,000 registered users online, and the online sales were up 72% from the previous year (Sunday Times Business Section, 2002). In September 2012, Domino's total sales rose 7.9% to £136.4m. Domino's stated that sales through e-commerce continued to rise and accounted for 58% of their total UK deliveries (BBC News, 2012). However, it can be difficult for an organisation to keep up with new technology since it is rapidly changing, and is likely to just keep developing as time goes on. Businesses therefore have to ensure they have a good level of innovation in order to have a sustained competitive advantage.
On the other hand, even though national competitiveness due to technological advances can be seen as a positive aspect for organisations, a limitation is that of governments becoming increasingly concerned. The decrease in government, falling transportation and communication costs, and increases in technological change are exposing all countries to an extraordinary level of international competition (Miozzo and Walsh, 2006). This brings us to the downfalls of technology. One issue with introducing technology is the loss of jobs for employees. By bringing in advanced technology, fewer workers are needed, so thousands of people are made redundant. "Robots are cheaper than employees, and manufacturers in every industry are rapidly shifting to automation.'' (Rifkin, 2005). Employees may feel untrustworthy and could give the company a bad reputation. Also, even though technology brings benefits to companies such as mass customisation, the processes that are involved are far from simple (Istook, 2002), which could lead to employees having to undergo extensive training in order to be able to handle the new technology. Another issue that can be raised is the problems it causes thousands of people online, such as fraud. The increasing popularity with online music downloads and online file sharing such as Napster is one example, not only does it give risk to consumers, such as online hacking, but also to businesses such as HMV which went into administration on 15th January 2013. This could be due to the increased technology that is allowing consumers to download music and movies online for free.
To conclude, technology has proven to be an important feature in helping an organisation to gain competitive advantage, and is used in every aspect of organisations' activities, as shown by Porter's value chain frame work. It helps firms to improve their products massively, and cut costs, in order to give customers the highest value products possible, but at a relatively low cost for the firm. This has shown to be done through operations such as mass production and inbound and outbound logistics such as containerisation. Through advances such as these, it helps customers to be quick with entering new markets, and potentially gaining a first mover advantage, which in turn helps them to gain the competitive advantage necessary. Technology has also shown to be used in combination with Porter's five forces in order to gain competitiveness through increasing the bargaining power or buyer's, using coupons etc. advertised mainly on social networking sites. However, there are some limitations that need to be considered when introducing technology, such as, is it going to reduce the reputation of the company? Workers may feel untrustworthy and a bad reputation could be spread through word of mouth. The biggest issue that has caused the most controversy is the loss of thousands of jobs due to technology, and so many people are now being made redundant to cut the costs of wages, since technology is now able to create a vast amount of products through mass production, but at a lower running cost. Overall, the positives do outweigh the negatives, and if it wasn't for technology, company's would struggle to add as much value to their products, as suggested in Porter's value chain, and would not have such an ability to gain an advantage over their competitors.