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The Vanishing Advantage
Carr, Chapter 4INFS 780
Richard T. Christoph
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IT’s Role in Business
Firms have spent literally billions in IT development Sought a competitive advantage
Pioneers built new systems at great expense The PGAITA factor Most systems focused on the TPS &
BICARSA Paybacks could be huge –
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IT and Competitive Advantage
For many years, firms believed IT provided an avenue to a sustainable competitive advantage Porter describes this as something that
you can do that competitors cannot easily duplicate
Carr refers to this as a proprietary advantage
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Proprietary vs. Infrastructural Advantage
Proprietary: One firm can “own” or control the technology SABRE is a great example
Infrastructural: Becomes a “cost of doing business” Electricity and phone network quickly
became part of the infrastructure. Most technologies start as proprietary
and move toward infrastructural
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Technologies in Transition
TIVO – started as proprietary, now CATV firms are deploying their own copies
SABRE – owned by AA, now, however is a basic, available system for airline reservations.
ATM – Provided a short advantage to owning banks – other banks quickly caught up
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IT & Productivity
IT has vastly enhanced productivity Carr notes that most productivity has
enhanced customers This means customers see lower prices Business do not see higher profits
If Carr is right, IT does not appear to yield a sustainable competitive advantage
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Compare with Porter’s 5 Forces
RivalryLevels
Buyers
Entrants
Suppliers
Substitutes
What has IT changed?
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Let’s look at RIVALRY
Usual issues for competition Warranties and guarantees Advertising & special promotions Dealer networks Product innovation
How does IT impact these? Doesn’t IT provide better customer
responsiveness for all of these??
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Rivalry after IT
Think about it – consumers benefit from fast ordering, dealer networks, lower cost information sharing Firms, however, must match these
abilities simply to stay in business! Firms gain no advantage from using IT
in these ways – but can lose all if they do not have IT!
This is a classic infrastructural situation
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Recall that RIVALRY Is Stronger when: Many, equal-sized firms Slow demand growth
Sales volume built by stealing share Switching costs are low Exit costs high
IT lowers switching costs, allows easy share stealing, makes small firms compete evenly with large firms
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IT Increases Rivalry??
Can IT be shown to INCREASE rivalry? It appears the answer is YES Rivalry increases – profits do not Customers benefit No strategic benefit to the firm
Again, a classic infrastructural technology
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Technology as an Infrastructure
Hardware and software moving rapidly to common standards Too expensive to develop one of a kind
– and no reward for doing so
Computational power cheaply and widely available No benefit from having the latest
system
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When IT was new
Ah, these were the days. I arrived at the very end of this period (1977) Technology itself was a barrier due to
cost (needed special room, power, operators)
Software did not exist – you wrote it Simple applications cost many
thousands Networks were slow (4800bps) and
needed special lines, gear, people
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Locking in Advantage
Firms sought first mover advantage One large bank system I installed
included some of the first ATM machines in SC
Very complex – we had some 10 leased lines (20 modems!) and a separate Series 1 computer moving between async & bisynch communications
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The brief advantage
My bank moved all operations in-house (DDA, loan, savings) Needed a single database, custom software –
all custom written Built an operations center, hired staff Total cost was over $2,000,000
Allowed immediate, rapid growth Competitors could match capability in
three years with commercial packages
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Bank software now
All banks must offer ATM access, single database accounts
Bank IT has become an infrastructure No longer provides competitive
advantage IT now offers more RISK than REWARD If IT fails, customers upset – if IT works,
customers not impressed
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Technology Replication Cycle
First movers spend huge amounts Imitators can usually copy cheaply
Errors are eliminated as we learn what works
Costs drop dramatically Followers my benefit more than first
movers
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Cost Declines of Computing Power
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Cost Declines of Networking Power
http://www.neweconomyindex.org/section1_page13.html
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So Costs Decline – so what?
Costs drop dramatically as technology moves from proprietary to infrastructural Best practices established Volume production Wide market adoption Consider electricity, telephone, VCR,
DVDRW, color TV
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Homogenization of Process
Competitors begin to use the same tools in the same way to do the same job
Used to built code to match our business process Now, we match our process to the
software Example: ERP systems
Require firms to adjust to the ERP package This reduces opportunity for unique,
system-based competitive advantage
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Homogenization of Process
Carr notes: When a company buys a Seibel
software package for CRM, it aslo is buying the Seibel way of managing customers.
An example of this is the Datatel WebAdvisor system All public SD schools use it – no one
has an advantage over any other school
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What’s a Mother To Do?
Peter Drucker notes that firms can tend to be efficient (doing things well) or effective (doing the right thing) (firms can rarely do both) Common software packages promote
efficiency but one firm will not be more effective than another using the same package
Competitive advantage is based on effective items