Achieving Competitive Advantage Through Is Information Technology Essay

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1st Jan 1970 Information Technology Reference this

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What are the identified problems, issues and short comings in addition to above two areas of studies how can Srilankan Airlines achieve competitive advantage by changing the effectiveness in their management system using IS/IT?

5.0 Background

Information System and Information Technology (IS/IT) has become the core feature for many business successes in the globe. IT applications are mostly used to help organizations to do its day to day work and to gain competitive advantage while reducing competitive disadvantage and to meet other business objectives which organizations need. According to Ross and Fenny (1999), in the mid of 1980s, they have identified the IS/IT as a key weapon which helps to achieve the competitive advantage for any organization. Also Ward and Daniel (2006) has stated in their book of Benefits Management that in the last four decades there was a huge IS/IT requirement for organizations to meet its requirement to achieve the competitive advantage. Furthermore Ward and Daniel (2006), mentioned that with the early stage of IS/IT adoption helps to automate some routine activities to reduce the efficiency and reduce the cost while delivering a good operational process with a good product.

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According to Croteau and Bergeron (2001); Kearns and Lederer (2000); Zhang and Lado (2001) cited in Garg, Joubert and Pellissier (2005) p.33, mentioned that applications which are support to achieve the competitive advantage referred to as the strategic management information technology and it helps to achieve the best business performance for the organizations. According to Burn and Martinsons (1997); Ho (1992); Wiseman (cited in Henry and Pun (2000), stated that it is possible to accomplish the competitiveness of companies by using new opportunities which offered to the firm by strategic information systems. Buhalis (2004), has mentioned in his research paper about e-airlines, that airlines have been investing heavily for Information Communication Technology since the 1950s and they have used the IS/IT as a competitive tool to achieve their business targets. Also he has mentioned some examples that, in 1962, the American Airlines introduced its SABER computer reservation systems as an alternative solution for their previous manual data entering system expanding its Boeing fleet by 50%.

According to the 12.manage.com website, with the huge business growth the IS/IT has given more impact to those businesses and mean while there is a huge development in IS/IT systems. Strategic planning helps the organizations to identify their IS application and its Information Technology which support to gain the competitive advantage over other competitors. Strategic planning is a tool which support for the organizing part for the present on the basis of the projections of the desired future. Information technologies are increasingly regarded as strategic resources of an organization. Indeed it is a potential use of IS/IT as a competitive weapon has become a popular cliché.

Also the Management play an important part of an organization. Its main role is to unite people together in order to accomplish achievable goals. Management mobilize or allocate resources to different department like Human resource, Finance, IT department, etc. and organize these resources in such a way that organizational strategic goals are accomplished easily in the long run. Management also takes vital part in planning, organizing, leading and controlling. It gives direction, aligns and achieves organization goals with available resources. As shown in the allbusiness.com website, there are three different types of levels available in management hierarchy. Those are categorized as strategic, tactical and operational. To get the maximum benefit out of the company business intelligence, the organization needs to have all three levels – strategic, tactical and operational – working in conjunction with one another. According to Steiner (1979), in the role of management scenario, mainly the strategic level is more important and it is the highest level and usually done by senior management level. Basically the decisions on the objectives, committing money, employee and time are done within this strategic level. Tactical planning level it does the implementation of the strategic plan stages such as combine the available resources and review alternatives. Within the operational level, it is much more detailed of strategic and tactical levels. In this level the managers chosen to work the plan develop a specific plan to execute the strategic plan. Therefore the management role and the IS/IT strategies are playing a huge role to gain the competitive advantage.

As stated in Srilankan Airlines annual report (2009), their IT division involving and giving huge support role to all departments in the Srilankan Airline during a year of multiple changes. Srilanka Airlines IT department is an independent department within the organization. Therefore it is an entity as a part of the process to align all divisions with the corporate strategy in an IT perspective and it is helping the entire organization to benefit from modern technology and improve their processes and productivity while gaining competitive advantage. However according to Porter (Cited in Clarke 2001) p.114, mentioned that, he has proposed to gain the competitive advantage; the firm must be based on one of three generic strategies. Those are categorized as differentiation, cost leadership and the focus. Considering the Porters differentiation strategy, the Srilankan Airlines has provided greater customer convenience through check-in facilities on mobiles was completed. This mobile facility is mainly focuses on the Srilankan Airlines customers. Comparing with other airlines, the Srilankan Airline has been using the differentiation strategy in their organization. Therefore further investigation is required to identify whether the role of management involvement is really beneficial to achieve the competitive advantage using IS/IT or not.

Considering all these general factors which mentioned in the above paragraphs, it is clear that role of management involvement and IS/IT involvement are the main key factors of gaining competitive advantage for any organization. Therefore this research is carried out to find whether the same concepts which have been described in above paragraphs can apply to the Srilankan Airlines to achieve competitive advantage while comparing with the general findings.

6.0 Literature Review

6.1 Introduction

IS/IT have revolutionized the entire business world. So far the organizations derive the competitive advantage applying technology to their industry. Mostly the competency will be changeable among the competitors base on their IT usage and the involvement of role of management. The airline industry in particular has fostered a dependency on IS/IT for their operational and strategic management. Airlines were early adopters of Information Systems & Information Technology and have a long history of technological innovation, in comparison to many other business industries. (Buhalis 2004). IT applications are mostly used to help organizations to its day to day work and to gain competitive advantage while reducing competitive disadvantage and to meet other business objectives which organizations need.

Following sections describe about what is competitive advantage and how the organizations achieve competitive advantage using IS/IT with involvement of management roles.

6.2 Competitive Advantage

As stated in 12manage.com web site, if a company probably able to make a profit in excess of its cost of capital, because it has achieved a competitive position which offers some of and edge over its potential rivals. To achieve such a competitive edge, it typically takes the formulation and execution of business strategy. To develop a competitive advantage, the company must possess value creating activities which cannot be duplicated by any other organization. According to Day and Wensley (cited in 12manage.com website 2010), mentioned that two sets of sources are there which involved in creating competitive advantage. Those two are categorized as superior skills and superior resources. As proposed by Porter (1985), that to gain the competitive advantage, the firm must be based on one of three generic strategies. Those are categorized as differentiation, cost leadership and the focus. The differentiation means that whatever the product should be different from other vendors and the cost leadership makes firm to produce the products in lower cost. This will help to increase the profit margins to the firm. Focus means that the firms must concentrate about the present market and need to identify where are they comparing to other vendors and finally based on the calculation they must perform better than other competitors using their skills and knowledge. In some other way Treacy and Wiersema (1995), proposed another popular generic framework for gaining competitive advantage. Within this framework, ‘a firm typically will choose to emphasize one of three “value disciplines”: product leadership, operational excellence, and customer intimacy’.

Operational Excellence

As suggested by Ward and Peppard (2002, p.112), Operational Excellence means ‘enabling products and services to be obtained reliably, easily and cost-effective by customers’. With this competency-based strategy it implies a business strategy which can do better improvement to the organization than other competitors and be able to deliver both cost-effective and reliable quality of customer contentment.

Product Leadership

Further to Ward and Peppard (2002, p.114), product leadership means ‘continuing product innovation meeting customers’ needs. This strategy implies not only creativity in developing new products and enhancing existing ones, but also astute market knowledge to ensure that they sell.’

Customer Intimacy

It has been argued (Ward and Peppard 2002, p.113), that the Customer Intimacy indicates ‘targeting markets very precisely and tailoring products and services to the needs of particular customer groups. The purpose of here is not just to satisfy but to please customers by understanding their needs and meeting them on every occasion. This can be obviously being expensive but it can build long-term customer loyalty’.

However further to Porter (1985), he has define a frame work model call ‘Five Forces’ diagram which capture the main idea of porters theory of competitive advantage. The five forces model defines the rules of any kind of competition in any industry. Further to Porter, these five forces determine industry profitability. Also the five forces frame work point out that what is most important and it helps organization to capture their targets for long-term advantage. The five competitive forces are typically shown in the following diagram 1.0;

Diagram 1.0: Porter’s Five Forces – Elements of Industry Structure

Source: Porter, (1985), p.6

The collection of strength of the five forces can be varies from industry to industry. In the meantime the strength each of the five forces also can change. Further to Porter and Miller (1985), stated that information technology can alter the five forces to the industry attractiveness. The Five Forces framework highlights what is important and directs manager’s towards those aspects most important to long-term advantage of the organization. According to Porter (1985), has explained the Five Forces elements as follows;

Bargaining Power of Suppliers

The term ‘suppliers’ comprises all sources for inputs that are needed in order to provide goods or services. There are several elements for Supplier bargaining power is likely to be high.

The market is dominated by a few large suppliers rather than a fragmented source of supply,

There are no substitutes for the particular input,

The suppliers customers are fragmented, so their bargaining power is low,

The switching costs from one supplier to another are high,

There is the possibility of the supplier integrating forwards in order to obtain higher prices and margins. This threat is especially high when

The buying industry has a higher profitability than the supplying industry,

Forward integration provides economies of scale for the supplier,

The product is undifferentiated and can be replaces by substitutes,

Switching to an alternative product is relatively simple and is not related to high costs,

Customers have low margins and are price sensitive,

Customers could produce the product themselves,

The product is not of strategically importance for the customer,

Threat of New Entrants

The competition in an industry will be the higher, the easier it is for other companies to enter this industry. In such a situation, new entrants could change major determinants of the market environment (e.g. market shares, prices, customer loyalty) at any time. There is always a latent pressure for reaction and adjustment for existing players in this industry. The threat of new entries will depend on the extent to which there are barriers to entry. These are typically

Economies of scale (minimum size requirements for profitable operations),

High initial investments and fixed costs,

Cost advantages of existing players due to experience curve effects of operation with fully depreciated assets,

Brand loyalty of customers

Protected intellectual property like patents, licenses etc,

Scarcity of important resources, e.g. qualified expert staff

Access to raw materials is controlled by existing players,

Distribution channels are controlled by existing players,

Existing players have close customer relations, e.g. from long-term service contracts,

The buying industry hinders the supplying industry in their development (e.g. reluctance to accept new releases of products),

The buying industry has low barriers to entry.

Bargaining Power of Customers

Similarly, the bargaining power of customers determines how much customers can impose pressure on margins and volumes. Customers bargaining power is likely to be high when

They buy large volumes, there is a concentration of buyers,

The supplying industry comprises a large number of small operators

The supplying industry operates with high fixed costs,

High switching costs for customers

Legislation and government action

Threat of Substitutes

A threat from substitutes exists if there are alternative products with lower prices of better performance parameters for the same purpose. They could potentially attract a significant proportion of market volume and hence reduce the potential sales volume for existing players. This category also relates to complementary products. Similarly to the threat of new entrants, the treat of substitutes is determined by factors like

Brand loyalty of customers,

Close customer relationships,

Switching costs for customers,

The relative price for performance of substitutes,

Current trends.

Competitive Rivalry between Existing Players

This force describes the intensity of competition between existing players (companies) in an industry. High competitive pressure results in pressure on prices, margins, and hence, on profitability for every single company in the industry. Competition between existing players is likely to be high when

There are many players of about the same size,

Players have similar strategies

There is not much differentiation between players and their products, hence, there is much price competition

Low market growth rates (growth of a particular company is possible only at the expense of a competitor),

Barriers for exit are high (e.g. expensive and highly specialized equipment).

Above mentioned forces determine the intensity of competition and hence the profitability and attractiveness of an industry. At the primary level, firms create competitive advantage by perceiving or discovering new and better ways to compete in an industry and bringing them to market, which is ultimately an act of innovation. Innovations shift competitive advantage when rivals either fail to perceive the new way of competing to respond. There can be significant advantages to early movers responding to innovations, particularly in industries with significant economies of scale or when customers are more concerned about switching suppliers. Some of the typical causes of innovations which shift competitive advantage are categorised as follows:

new technologies

new or shifting buyer needs

the emergence of a new industry segment

shifting input costs or availability

changes in government regulations

Over the past two decades, researches have proposed several strategic frameworks to identify the IT applications that are likely to provide competitive advantage. It is important to identify the difference between IS, IT and information and the generic benefits of IS/IT as well. Therefor the following will discuss about the IS/IT strategies and how it beneficial for the business sector.

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6.3 IS/IT Strategies

It has been argued by Clarke (2001), p.115, that information’s passes in-between individuals and groups with a given social environment. Information systems may identify as a system which supports and enable to pass within the specific environment. Distinguish between IS, IT and information’s and the way its link with each other is showing in the following figure 1.1.

Information

Support

Information Systems

Enables

Information Technology

Figure: 1.1 The Nature of Information Technology, Information Systems and Information

Source: Clarke (2001), p.116

There are several benefits which can be gained from IS/IT. According to Farbey et.al (cited in Ward and Danniel, 2006), stated that there are five elements included in the organizational structure. Following table 1.2 shows the five elements of and organization and its description.

Organizational Structure Elements

Description

Strategic

Includes people charged with overall responsibility for the organization’s direction

Management

Includes middle managers who operate in order to transform the strategic vision into operational reality

Operational

Refers to people who perform work related directly to the production of products and services

Functional

Includes people who serve the organization by affecting others’ work

Support

Includes people who provide support for the organization outside the basic production of goods or services. These are often specialist in certain disciplines.

Table: 1.2 The five elements of an organization

Source: Ward and Daniel (2006), p. 7

However table 1.2 shows that there is significant numbers of benefits can apply to the management and to the organization which helps to gain the significant development. As argued by Ward and Daniel (2006), the strategic benefits are more involved in business organizations development and to develop a new business models where IS/IT play a main role. As stated by Ferbey et al. (cited in Ward and Daniel 2006), the term of management describe about the activities of middle management in an organization. These manager levels operate business unit levels and take decision making and also responsible for the development of their staff members. Further to Farbey et al. (cited in Ward and Daniel 2006), the operation benefits are classifieds in to goods and services which any firm provides. The main target is to get a worthy output which is differentiating from other vendors. While having a good operational benefits and giving it to the customers, the company can gain more benefits while gaining competitive advantage. Also in functional and support benefits, it identifies certain activities which are support for the core activities which relate to company production of the goods and services.

At the level of strategy implementation, the firms perform discrete activities – conceiving new ways to conduct activities, employing new procedures, new technologies, or different inputs. As suggested by Porter (1980), the value chain is a systematic way of examining all the activities a firm performs and how they interact. It scrutinizes each of the activities of the firm (e.g. development, marketing, sales, operations, etc.) as a potential source of advantage. The value chain maps a firm into its strategically relevant activities in order to understand the behaviour of costs and the existing and potential sources of differentiation. All the activities in the value chain contribute to buyer value, and the cumulative costs in the chain will determine the difference between the buyer value and producer cost.

A firm gains competitive advantage by performing these strategically important activities more cheaply or better than its competitors. One of the reasons the value chain framework is helpful is because it emphasizes that competitive advantage can come from anywhere along the value chain. It is important to understand that how a firm fits into the overall value system and it should include the value chains of its suppliers, channels, and buyers.

Porter (1996) builds on his ideas of generic strategy and the value chain to describe about the strategy implementation in more detail. Competitive advantage requires that the firm’s value chain be managed as a system. Positioning choices determine not only which activities a company will perform and how it will configure individual activities, but also how they relate to one another. This is crucial, since the essence of implementing strategy is in the activities – choosing to perform different activities than rivals. A firm is more than the sum of its activities. Further to Porter (1996), a firm’s value chain is an interdependent system or network of activities which has connected by linkages. Linkages create trade-offs requiring optimization and coordination.

Porter (1986), has describes three choices of strategic position that influence the configuration of a firm’s activities:

Variety-based positioning – based on producing a subset of an industry’s products or services; involves choice of product or service varieties rather than customer segments. Makes economic sense when a company can produce particular products or services using distinctive sets of activities. (i.e. Jiffy Lube for auto lubricants only)

Needs-based positioning – similar to traditional targeting of customer segments. Arises when there are groups of customers with differing needs, and when a tailored set of activities can serve those needs best. (i.e. Ikea to meet all the home furnishing needs of a certain segment of customers)

Access-based positioning – segmenting by customers who have the same needs, but the best configuration of activities to reach them is different. (i.e. Carmike Cinemas for theatres in small towns)

Porter’s major contribution with “activity mapping” is to help explain how different strategies, or positions, can be implemented in practice. The key to successful implementation of strategy, he says, is in combining activities into a consistent fit with each other. A company’s strategic position, then, is contained within a set of tailored activities designed to deliver it. The activities are tightly linked to each other, as shown by a 1.3 diagram of sorts. Fit locks out competitors by creating a “chain that is as strong as its strongest link.” If competitive advantage grows out of the entire system of activities, then competitors must match each activity to get the benefit of the whole system.

Figure 1.3 Activity Map

Source: Porter, Harvard Business Review (1996)

Porter defines three types of fit:

simple consistency – first order fit between each activity and the overall strategy

reinforcing – second order fit in which distinct activities reinforce each other

Optimization of effort – coordination and information exchange across activities to eliminate redundancy and wasted effort.

To manage all these IS/IT strategies within the organizations and to achieve the competitive advantage, the management roles are also playing a huge role within the organization. The following section will talk about the levels of Management roles and how it supports to gain the competitive advantage for the organization.

6.4 The Role of Management

To achieve the competitive advantage, the Management levels also contribute hugely. Efficient IS/IT systems enables management to co-ordinate, organise and to control with a good plan. It gives information needed for strategic planning and for day to day operations. Therefore senior executives, strategic planners and information system managers are increasingly looking forward to get the use of IS/IT to achieve the competitive advantage. To prove this, there are several explanations in recent trends. Bakok and Treacy (1986), has identified that the underutilization of IS/IT as a serious problem for both IS/IT and for organization business managers. The main reason to narrow down to the IS/IT base competitive advantage are senior managements ignorance of IS/IT and its potential use and the poor communications among the groups who deals with IS/IT and the rest of the business teams. Also the resistance to change among both IS/IT and business personal and a lack of focus about the opportunities are some serious reasons which organizations are facing.

According to White (2009), there are three different of management levels are included within the management hierarchy. These different levels are categorized as strategic, tactical and operational. According to scitation.aip.org web site, when in a strategic level, organisations must manage total demand whilst they acquire new infrastructure, technology or skills. At the tactical level the aim is align resources to enhance customer value in the most profitable way. Operational level, the management aims to provide reliable delivery performance within supply constraints. Getting the balance right between strategic, tactical and operational decisions will have any business powering ahead.

According to Gerber (1995), strategic decisions play a biggest role in the business. Its decisions focus typically external to the business oriented and its decision making create forward thrust in the business. This strategic business will include the following points.

What business are you in?

What is your vision for the business?

What’s your business’ identity?

What do you stand for?

Which direction is the business headed?

How will the business compete?

Also Gluck, Kaufman and Walleck (1982), have suggested that strategic management in most companies evolves along similar lines, by varying rates of progress from the basic financial up to overall strategic management framework. Also the strategic decisions force management to access the consequences of present decisions and do the changes as needed and to lead company to achieve it targets.

The second major role is the tactical decisions. This involves the establishment of key initiatives of the overall strategy. Further to Gerber some examples we can take as, if organization decided to be the number one provider among the business competitors, then the organization must develop tactics such as implement a marketing system to achieve that outcome. This tactical decision is the domain of any business mission.

Further to Gerber (1995), the next level is the operational decisions which determine how activities actually get done. This decision is mainly about who is going to do what and when. This will include the following terms:

How will Organization spend their money this month?

How will the company service that client?

What is companies’ procedure for delivering an order?

Who will be doing quality control?

If an organization is making decisions involving process and procedures, then these can identified as an operational decisions. Specially operational decisions are made in real time and make quick adjustment to achieve the desired outcome.

Also according to Abdi and Sharma (2007), stated that strategic and tactical management roles are playing huge role within the flight operation handling while using information systems. When we consider such an operation, there can’t be any small mistake. Even a one wrong decision will lead to a huge problem in airline industry. Therefore it is very clear that the management decisions are very important when organization deals with IS/IT. As stated by Boseman, Phatak and Schellenberger (cited in Vardrajan & Clark 2002), management roles are process with concerned with determining the future direction of an organization and implementing decisions based on the aim to achieve organization long and short term objectives. Within every firm the nature of control changes with the level of management. Top level management is mainly concerned about the issues which relate to strategic control. The lower level management is look after the operational issues.

7.0 Methodology

The following sections present research methods that are using for this research project.

7.1 Selection of an appropriate research method(s)

Following sections present a brief description of few research methods. Also this section explains the reasons to select those methods for this research project.

7.1.1 Description of Research Methods

Case Study Research: According to researcher Yin (1984, p. 23), the Case study research method is defined as an “empirical inquiry that investigates a contemporary phenomenon within its real-life context; when the boundaries between phenomenon and context are not clearly evident; and in which multiple sources of evidence are used”. Also the case study includes observations, questionnaires. Also each organization has unique feature and mainly the Case studies are used to identify such features and to show how they affect the implementation of systems and how it influences the organizations.

Action research: According Emroy (1980), mentioned that, like Action research methodology is mainly need to be flexible and adaptable due to disruption in the plan and may not meet the needs of everyone involved. Also it is not well known or accepted in computing and information systems.

Survey Research: This method is used by the researchers when they want to gather data from some occurrence which is not possible to perform a direct observation.

Experimental Research: When we consider the Experimental Method, it is mostly depend on the experiments on a new technique or approach and have to compare the results against those obtained using the generally accepted technique or approach. Therefor it seems this research method takes more time and the results will vary with each organization (Emroy 1980).

7.1.2 Proposed Research Method(s) for this study

Matching the above mentioned attributes of the research methods with this research project, case study is the best research method that can be used.

Primary and secondary data has to be used for this research project. Secondary data will be used get the theoretical aspects of role of management and

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