Information System is becoming an important framework that can assist organizations to manage, develop and communicate their intangible assets such as information and knowledge. Therefore it can be considered as a necessary framework in the current knowledge-based economy arena. In this paper, I will also explain the role of Business Intelligence in providing organizations with a way to plan and obtain their strategic managements objectives.
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Than others. There’s almost always a prominent firm. In the automotive industry, Toyota is considered an exceptional performer. In pure online retailing, Amazon.com is the leader. In off-line retailing Wal-Mart, the largest retailer on earth, is the also leader. In online music, Apple’s iTunes is considered the superior with more than 75 percent of the downloaded music markets, and in the related industry of digital music players, the iPod is the best. In Web searching, Google is considered the leader.
Firms that “do better” than others are said to have a competitive advantage over the others: They either have access to specific resources that others do not, or they are able to use generally available resources more efficiently-usually because of superior knowledge and information assets. In any event, they do better in terms of revenue growth, profitability growth, or productivity growth (efficiency), all of which eventually in the long run translate into higher stock market valuations than their competitors. But
- Why do some firms do better than the others and how do they obtain competitive advantage?
- How can we analyze a business and recognize its strategic advantages?
- How can we build a strategic advantage for our own business?
- How do information systems cause to strategic advantages?
One answer to questions above is Michael Porter’s competitive forces model.
Arguably, the most famously used model for understanding competitive advantage is Michael Porter’s competitive forces model (See Figure 1).This model provides a common view of the firm, its competitors, and the firm’s environments.
Porter’s model is all about the firm’s common business environment. In this model, five competitive forces form the fate of the firm.
Figure 1- Porter’s competitive forces model
A profitable company depends in large criterion on its ability to attract and hold customers (while denying them to competitors), and charge more expensive prices.
The power of customers becomes larger if they can easily switch to a competitor’s products and services, or if they can force a business and its competitors to compete on price alone in a clear marketplace where there is slightly product differentiation, and all prices are known immediately (such as on the Internet). For example, in the used college textbook market on the Internet,
students (customers) can find various suppliers of just about any current college textbook. In this case, online customers have high power over used-book firms.
The market power of suppliers can have a important impact on firm profits, particularly, when the firm cannot increase prices as fast as can suppliers. The more different suppliers a firm has, the greater control it can practice over suppliers in terms of price, quality, and delivery timetables. For example, manufacturers of laptop PCs almost always have various competing suppliers of key components, such as keyboards, hard drives, and monitors.
All firms share market space with other competitors who are continuously making new, more efficient ways to produce by introducing new products and services, and attempting to attract customers by developing their brands and compelling switching costs on their customers.
New Market Entrants
In a free economy with moveable labor and financial resources, new companies are always entering the marketplace. In some industries, there are very low barriers to entry, whereas in other industries, entry is very troublesome. For instance, it is easy to start a pizza business or just about any small retailing business, but it is much more costly and difficult to enter the
computer chip business, which has very high capital costs and requires a considerable amount of expertise and knowledge that is hard to achieve. New companies have several possible advantages: They are not locked into former plants and equipment, they often employ younger workers who are less expensive and maybe more innovative, they are not burdened by old, worn-out brand names, and they are “more hungry” (highly motivated) than traditional occupants of
an industry. These benefits are also their weakness: They depend on external financing for new plants and equipment, which can be costly; they have a less experienced manpower; and they have little brand identification.
Substitute Products and Services
In just about every industry, there are substitutes that the customers might use if our prices become excessively high. New technologies make new substitutes all the time. Even oil has substitutes: Ethanol can substitute for gasoline in automobiles; plant oil for diesel fuel in trucks; and wind, solar, coal, and hydro power for industrial electricity production. Likewise, Internet telephone service can substitute for customary telephone service, and fiber-optic telephone lines to the house can substitute for cable TV lines. And, of course, an Internet music service that permits us to download music tracks to an iPod is a substitute for CDbased Music shops. The more substitute products and services in industry, the less we can control pricing and the lower our net profits.
Information System Strategies for Facing up to Competitive Forces
How can firms use information systems to neutralize some of the forces outlined in Porter’s competitive forces model? Four general strategies are outlined in Table-1
Use information systems to produce products and services at a lower price than competitors while enhancing quality and level of service.
Wall-Mart, Dell Computer
Use information systems to differentiate products, and enable new services and products.
Google, eBay, Apple, Lands’ End
Focus on market niche
Use information systems to enable a focused strategy on a single market niche; specialize.
Hilton Hotels Harrah’s
Customer and supplier
Use information systems to develop strong ties and loyalty with customers and suppliers.
Chrysler Corporation, Amazon.com
Table 1-Four basic competitive strategies
Use information systems to obtain the lowest operational costs and the lowest prices. Firms such as Wal-Mart have utilized IT to make an efficient customer response system that directly links customer behavior back to production, distribution and supply chains.
Use information systems to allow new products and services, or greatly change the customer convenience in using our existent products and services. Through mass customization, organizations are capable of to offer individually tailored products or services by using mass production resources.
Focus on Market Niche
Use information systems to enable a particular market focus, and serve this narrow target market better than competitors. Information systems support this strategy by producing and analyzing data for extremely well tuned sales and marketing techniques. Information systems enable companies to analyze buyer buying patterns, tastes, and preferences closely so that they efficiently establish advertising and marketing campaigns to smaller and smaller target markets.
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Strengthen Customer and Supplier Intimacy
Use information systems to make tight linkages with suppliers and develop intimacy with customers. Amazon and Chrysler Corporation are both excellent instances that are quoted in the text of how these firms used information systems to fortify their customer and supplier relationships. Strong linkages to customers and suppliers raise switching costs (expense a customer or company incurs in lost time and expenditure of resources when changing from one supplier to a competing supplier).
The Business Value Chain Model
Although the Porter model is very useful for identifying competitive forces and suggesting general strategies, it is not very specific about what accurately to do, and it does not provide a methodology to follow for obtaining competitive advantages. If our aim is to achieve operational excellence, where do we start? Here’s where the business value chain model is really helpful.
The value chain model highlights specific activities in the business where competitive strategies can best be applied (Porter, 1985) and where information systems are most likely to have a strategic effect. This model recognizes specific, critical-leverage points where a firm can use information technology most effectively to improve its competitive position. The value chain model shows the firm as a series or chain of basic activities that add a margin of value to a firm’s goods or services. These activities can be classified as either primary activities or support activities (see Figure 2).
Figure 2-Business Value Chain Model
Now, “How can we use information systems to enhance operational efficiency, and improve supplier and customer intimacy?” This will encourage us to critically examine how we
perform value-adding activities at each phase and how the business processes might be enhanced. We can also begin to ask how information systems can be used to improve the relationship suppliers with customers who locate outside the firm value chain but belong to the firm’s extended value chain where they are absolutely crucial to our success. Here, supply chain management (SCM) systems that arrange the flow of resources into our firm in proper order, and customer relationship management (CRM) systems that coordinate our sales and support employees with customers are two of the most common system applications that derive from a business value chain analysis. Using the business value chain model will also bring about us to consider benchmarking our business operation versus our competitors or others in related industries, and recognizing industry best practices. Benchmarking involves comparing the effectiveness of business processes against severe standards and then measuring performance versus those standards. Industry best practices are usually recognized by consulting
companies, government agencies, industry associations and research organizations as the most successful solutions for consistently and effectively achieving a business goal. Once we have analyzed the several stages in the value chain at our business, we can come up with proper applications of information systems. Then, once we have a list of proper applications, we can decide which to build first. By making enhancements in our own business value chain that our competitors might miss, we can obtain competitive advantage by attaining lowering costs, operational excellence, enhancing profit margins, and forging a closer relationship with suppliers and customers. If our competitors are making similar enhancements, then we will not be at a competitive disadvantage-the worst of all cases
Synergies and Core Competencies
A large firm is typically a collection of businesses. Often, the firm is managed financially as a collection of strategic business units, and the returns to the corporation are directly tied to the performance of all the strategic business units. Information systems can enhance the overall performance of these business units by promoting core competencies and synergies.
The aim of synergies is that when the output of some units can be used as inputs to other units, or two organizations pool markets and expertise, these relationships reduce costs and make profits. Recent bank and financial firm mergers, such as the mergers of JPMorgan Chase and Bank One Corporation, FleetBoston Financial Corporation and Bank of America, and Deutsche Bank and Bankers Trust, occurred exactly for this intention,
One use of information technology in these synergy situations is to fasten together the operations of dissimilar business units so that they can work as a whole. For instance, merging with Bank One provided JPMorgan Chase with a enormous network of retail branches in the Southwest and Midwest. Information systems assist the merged banks lower retailing costs and increase cross marketing of financial goods.
Enhancing Core Competencies
Another way to use information systems for competitive advantages is to think about ways that systems can improve core competencies. The argument is that the performance of all business units will rise insofar as these business units improve, or make, a central core of competencies.
Core competencies may include being the, the best packaged delivery service, world’s best miniature parts designer or the best thin-film manufacturer. In general, a core competency leans on knowledge that is gained over many years of experience and a first-class research organization or simply key people who pursue the literature and stay side by side of new external knowledge.
Any information system that supports the sharing of knowledge across business units enhances competency. Such systems might encourage or improve existing competencies and help employees become conscious, of new external knowledge; such systems might also facilitate a business leverage existing competencies to related markets.
The Impact of Business Intelligence on Competitive Advantage
Business Intelligence is becoming crucial for many organizations, particularly those have extremely large amount of data. Decision makers depend on detailed and exact information when they have to make decisions. Business Intelligence can provide decision makers with such precise information, and with the suitable tools for data analysis.
Business Intelligence is an umbrella term that combines tools, architectures, applications, data bases, practices, and methodologies [20, 6]. Gartner Group (1996) (the first company used Business Intelligence in marker in the mid-1990) defined Business Intelligence as “information and applications available broadly to employees, consultants, customers, suppliers, and the public. The key to thriving in a competitive marketplace is staying ahead of the competition. Making sound business decisions based on accurate and current information takes more than intuition. Data analysis, reporting, and query tools can help business users dig in the mine of data to extract and/or synthesize valuable information from it – today these tools collectively fall into category called Business Intelligence” . Many organizations who built successful Business Intelligence solutions, such as Continental Airlines, have seen investment in Business Intelligence create increases in revenue and cost saving corresponding to 1000% return on investment (ROI) .
A critical question that was raised by many researchers [16, 18] as to what were the main reason pushing companies to seek for business intelligence solutions, and what distinguishes Business Intelligence from Decision Support System (DSS) systems?
Actually, over the last decades, organizations built a lot of Operational Information Systems (OIS), resulting in an enormous amount of dissimilar data that are located in different geographic locations, on different storage platforms, with not the same forms. This situation impedes organization from building a general, correlated, integrated, and instantaneous access to information at its global level. DSS developed during the 1970s, with the objective of providing organization’s decision makers with the demanded data to sustain decision-making process. In the 1980s, Executive Information System (EIS) developed to supply executive officers with the information needed to support strategic decision-making process. Business Intelligence developed during the 1990s as data-driven DSS, sharing some of the tools and objectives of DSS and EIS systems. Business Intelligence architectures comprise: business analytics, data warehousing, business performance management, and data mining. Most of Business Intelligence solutions are facing up to structured data . However, many application domains need the use of unstructured data or at lowest semi-structured data e.g. customer e-mails, web pages, sales reports, competitor information research paper repositories, and so on [4, 21]. Any Business Intelligence solution can be divided into the following three layers : data layer, which is accountable for storing structured and unstructured data for decision support objectives. Structured data is usually collected in Data Warehouses (DW), Operational Data Stores (ODS), and Data Marts (DM). Unstructured data are managed by using Content and Document Management Systems. Data are extracted from operational data sources, e.g. SCM, CRM, and ERP or from exterior data sources, e.g. market research data. Data are taken out from data sources that are transformed and loaded into DW by ETL (Extract, Transfer, and Load) tools. Logic layer prepares functionality to examine data and provide knowledge. This obtains OLAP, data mining. And finally access layer, realized by some type of software portals (Business Intelligence portal).
My main focus in this paper is to explain the function of Business Intelligence solution that facilitates organizations in formulating, implementing, and obtaining their strategies. Many researchers [5, 17, 10, 12] were emphasizing the IT alignment in general, with businesses, without clearly describing what are the technologies, and tools that can assist organizations in achieving their strategy.
The next section will describe the role of Business Intelligence is taking as an IT-enabler to obtain organization’s strategy; such role will be emphasized by using strategic alignment model proposed by Henderson and Venkatraman (1993), explaining how this alignment can assist organizations in becoming flexible organizations, concluding how could Business Intelligence solution prepare organizations with sustainable competitive advantages.
Business Intelligence as an IT-Enabler to Achieve Organization’s Strategy
Nowadays, Information System in general, and Business Intelligence as a strategic framework, is becoming increasingly significant in strategic management, supporting business strategies. IT-enabled strategic management addresses the IT role in strategy formulation and implementation processes . Drucker, the pioneer of management by objectives, was one of the first who recognized the surprising changes IT presented to management. Strategic management theories were widely geared towards gaining competitive advantages. Porter (1979) proposed a number of very influential strategic analysis models, such as the five-force model of competition, the value chain and generic competitive strategies that I mentioned above. Porter (1979) said “The essence of strategy formulation is coping with competition” . Many researchers have indicated the importance of IT alignment with business strategy in order to enhance corporate strategy [5, 17], (Figure3).
Figure 3-IT alignment with Business Strategy .
Strategic Alignment Model was developed by Henderson and Venkatraman (1993) was one of the first models that explained in a clear way the interrelationships between business strategies and IT strategies . This model is based on two principal concepts (Figure 4):
strategic fit that identifies the necessity to position the firm in an external marketplace where growth can take place, and functional integration which addresses how to best structure internal systems to carry out the business strategy of the firm .
IT alignment is not only formulating IT strategy to fit business strategy. It has to consider exterior forces and the environment uncertainty. Such alignment facilitates organizations becoming flexible organizations. Due to accelerations in the rates of innovation and technological changes, markets develop rapidly, products’ life cycles get shorter and innovation becomes the principle source of competitive advantage. And so, organizations look for flexibility to meet market demands. Drnevich and other; (2006) illustrated that flexibility-based perspectives evolved from Schumpeter’s concept of creative destruction .
Operationalization of these perspectives in strategic management is done by way of dynamic capabilities and real options views. Dynamic capabilities view refers to the firm’s abilities to maintain and fit its internal resources to environment changes to maintain sustainability of competitive advantages. It applies to the capability of obtaining new ways of competitive advantage. It causes to be concerned with continuous search, innovation and adaptation of firm resources and capabilities to reveal and tape new sources of competitive advantages. Real options outlook is effective in dealing with issues of uncertainty. It allows the firm to postpone investment decisions until uncertainties are resolved. New IT organizational adoption expedites the transition into flexible organizations. Business Intelligence is one of these new IT frameworks that can assist such transition. Business Intelligence technologies become a source of competitive advantages and differentiation [13, 11]. Tang and Walters (2006) hint that competitive advantage became a hot strategic management topic . They also view that making new knowledge in a continued way is the single way to achieve competitive advantage.
There are many reasons for organization to adopt business intelligence systems in order that achieve organization’s strategy:
- Business Intelligence is considered as an expansion to corporate strategy activities. Herring (1988) considered that “Strategy can be no better than the information from which it is derived” .
- Data analytics can be used efficiently to create future business strategy.
- Data analytics and data mining could disclose hidden reasons for some deficiencies as well as possible high-yielding new investments.
- Corporations require to be sure that they are receiving the right information related to their long-term strategy.
Herring (1988) considered that business intelligence can facilitate organizations in :
- Supporting the strategic decision making process of the firm.
- Supporting SWOT analysis
- Supporting strategic planning and processes.
All the mentioned advantage should provide organizations with sustainable competitive advantages.
In this paper, I explained the use of one aspect of Information System (Business Intelligence) in formulating, implementing, and achieving organization’s strategy. I also demonstrated how Business Intelligence solution could provide organizations with sustainable competitive advantages.
This survey can be extended by integrating knowledge management (KM) with Business Intelligence (IB) solutions, as it can assist deriving more value (knowledge) from the explosion of textual information(tacit to implicit), which can add more inputs for strategic decision makers. Another important factor is the take advantage of agile methodologies in order to manage the high-change high-speed current environment. Such complicated and dynamic environments highly affect organization’s strategies.
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