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The Internet And Information System That Contribute To Competitive Advantage

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Autor:  anton  04 July 2011
Tags:  Internet,  Information,  System,  Contribute,  Competitive,  Advantage
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AFF5200

ISSUES IN COMPETITIVE ADVANTAGE

PROJECT I

THE INTERNET AND INFORMATION SYSTEM THAT CONTRIBUTE TO COMPETITIVE ADVANTAGE

PREPARED FOR

Mr. Richard Laney

By

Wendy (20646836)

Sara

Prashanthi Ananthula (20107226)

Kaushalya Abeysinghe (20139128)

TABLE OF CONTENTS

INTRODUCTION

With the increasing global competition faced by businesses, it is important that in order to survive they have to put in place a highly effective Information Technology (IT) infrastructure to increase their chances of succeeding. In this report we focus on how information systems (IS) and internet can be used to achieve competitive advantage to a business. Over the past few decade mangers are focuses on adopting new technology to their business thus to achieve competitive advantage. These technological revolution lead to a significant change of structure of the industry and manner of companies compete

In this report, with two case studies (Wal-Mart stores & Commonwealth Bank of Australia – net bank), we examine the possible use of the Internet and information systems as a business tool to gain competitive advantage. Further, it discusses the competitive forces using Porter’s model and the strategies to overcome these forces. In the end it explains the most commonly used Internet tools with relation to practical examples of their possible use as tools to gain a competitive advantage.

INFORMATION SYSTEMS

Information system is a set of interrelated components that work collectively to carry out input, processing, output, storage and control actions in order to convert data into information products that can be used to support forecasting, planning, control, coordination, decision making and operational activities in an organisation .

ROLE OF INFORMATION SYSTEMS IN BUSINESS

Information systems play a vital role in business world. Up until mid-1950’s firms managed to conduct their business activities manually, this involved paper work to communicate information. During the past 50 years the flow of information among the businesses has been computerised. In today’s world, an information system is laid as a foundation for conducting business activities. It has been difficult for many industries to exist in the competitive market without an extensive use of information technology.

Businesses face many challenges and problems and information systems are used as a tool to solve these problems and achieve organisation’s objectives. Businesses - both small and large scale invest in information systems to manage the production functions and to survive in the competitive environment. Specially, Businesses today use information systems to achieve six major objectives: operational excellence, new products, services and business models, customer or supplier intimacy, improved decision making, competitive advantage and day-to-day survival.

Kia motors’ can be referred to as an example how companies today rely on information systems for operating their businesses. Kia has experienced quality problem due to the lack of system to track and identify defects in motors which affected its profits and long term survival. Later Kia came out with a solution to develop a system that extracted the data from all systems and integrated the data and then analysed them, with capability for displaying overall trends and for drill down into details. This defect reporting system helped the company to increase profits and even strategic advantage.

USING INFORMATION SYSTEMS TO ACHIEVE COMPETITIVE ADVANTAGE

Competitive advantage is an advantage that a firm has over its competitors, allowing it to generate greater sales or margins and/or retains more customers than its competitors. In every industry we can see that some firms do better than others- for example in case of retail industry Wal-mart is considered as a leader and Google in case of web search. Firms are said to have competitive advantage if they do better than others. But why do some firms do better than others? It may be because these firms have access to special resources or they are able to use commonly available resources more efficiently or could be any other reason.

Competitive advantage can be understood by Michael porter’s competitive forces model. This model provides general view of the firm, its competitors and the firm’s environment. The five competitive forces are traditional competitors, new market entrants, Substitute products and services, customers and Suppliers which are explained in diagram below

(Source from www.investopedia.com)

пѓ? TRADITIONAL COMPETITORS

All firms face competition in the market with the competitors who are introducing new products and services and developing more efficient ways to produce their brands and attract customers.

пѓ? NEW MARKET ENTRANTS

The existing firms always have to face a threat of new entrants which may weaken the position of existing firms. If the existing company has strong and durable barriers to entry then the company can secure position in the market.

пѓ? THREATS OF SUBSTITUTES

The firm has to encounter competition if substitute products are available in the market. Usually customers go for substitutes if the prices of the products become too high.

пѓ? BARGAINING POWER OF BUYERS

Under this principle Porters says that larger the number of substitutes to the products or services, the greater the bargaining power of customer.

пѓ? BARGAINING POWER OF SUPPLIERS

Suppliers who have market power can make a significant effect to the profit of the company. Suppliers are powerful when there are only few companies and few substitute available to the customers.

SOLUTIONS ACHIEVING COMPETITIVE ADVANTAGE USING INFORMATION SYSTEMS – PORTER’S GENERIC STRATEGY

Firms use different strategies to prevent from competitive forces by using information technology and systems. There are four generic strategies which can be used as solutions to the above mentioned competitive forces which are explained below.

(Source from www.12 manage.com)

пѓ? LOW COST LEADERSHIP

Using information systems firm can significantly reduce the cost obtaining, processing and the prices of the products, thus reducing the overall cost of the business. Example: Wal-Mart.

пѓ? PRODUCT DIFFERENTIATION

Firms apply information system, to introduce new products and services to their product line or change existing product and services to enhance the customer convenient. Example: Google, eBay, Apple, Lands’ end.

пѓ? FOCUS ON MARKET NICHE

Firms can use information systems to address a need for a product or service that is not being addressed by their competitors. Information system supports this strategy by analysing data which collected from different resources to create sales and marketing methods. Information system also helps to analyse customer buying patterns, customer tastes and preferences to achieve successful marketing and advertising campaigns. Examples: Hilton Hotels, Harrah’s etc.

пѓ? STRENGTHEN CUSTOMER AND SUPPLY CONFIDENCE

Firms can use information systems to develop the relationship with suppliers and intimacy and loyalty with customers. Examples: Chrysler Corporation, Amazon.com

THE BUSINESS VALUE CHAIN MODEL

Although Porter model is helpful for identifying the competitive forces and suggesting generic strategies as solutions to achieve competitive advantage, it does not provide specific methodology to follow to achieve competitive advantage. Thus the Value chain model came into existence.

The value chain framework is a model that helps to analyse specific activities through which firm can create value and competitive advantage . This model also identifies where the business can use information systems to achieve competitive advantage. The value chain model views the firm as a series of activities that add a value to firm’s products and services. These activities are divided into primary and support activities. Primary activities include inbound logistics, outbound logistics, operations, sales and marketing and services. Inbound activities include receiving and storing of raw material. Operations transform raw material to finished product. Outbound logistics include storing and distribution of finished goods. Sales and marketing activities include promoting and selling of products. Support activities consist of administration and management, human resources, technology and procurement.

Porter's Value Chain Model

Inbound

Logistics > Operations > Outbound

Logistics > Marketing

&

Sales > Service > Primary

Activities

Firm Infrastructure

HR Management

Technology Development

Procurement Support

Activities

(Source from Net MBA; Business knowledge centre website)

The information systems can improve firm’s operational efficiency and customer and supplier relationship. This can be by done by gathering, organizing, selecting and synthesizing the raw data, transforming and distributing information to the firm to enhance the operations and other activities and thus, achieving competitive advantage. It also offers a handy means of comparing a firm’s activities and costs to those of its competitors.

Case study 1 ---Wal-Mart stores

Wal-Mart and its success

Wal-Mart is a classic case that uses low-cost leadership strategy to achieve its competitive advantage. Wal-Mart opened its first store in Rogers, Arkansas, in 1962. During the first 5 years of operation, its competitor Kmart built 250 stores and generated $800 million in annual sales. By contrast, Wal-Mart only owned 19 stores and sales of $9 million at the end of its first five years. However in 1979, its annual sales already grew faster than any other retailers, reached $1 billion and in 2002, it became the world’s largest retailer with $218 billion in sales .

Wal-Mart can succeed because of its powerful information system. It is always one of the earliest retailers who advocate using new information technology and keeps its information system updated. The use of information system makes Wal-Mart’s inventory and distribution system become a world leader, So that Wal-Mart can achieve the competitive advantage of using lowest price as its tool to attract customers and make profits. Its powerful Information system allows it to reduce cost in the largest extent. Wal-Mart’s competitor, for example Sears, have been spending 24.9% of sales on overhead (an average of 20.7% for the whole retail industry), while Wal-Mart pays only 16.6% percent of sales for overhead by using effective information system. So, that is why Wal-Mart can always be the winner in the price wars in competition.

Wal-Mart’s information system and competitive advantage

In 1981, Wal-Mart implemented a new purchase order system and successfully tested a point-of –sale scanning system. In 1987, Wal-Mart’s satellite network was set up successfully. In 1988, Wal-Mart developed EDI system. In 1996, Wal-Mart made Retail link and EDI available through the internet and began to use internet as an application platform. In 2004, Wal-Mart began to use RFID (Radio Frequency identification) tags . We can see, Wal-Mart has been focusing on updating its information systems all the time. Next, I will introduce several important successful information systems used by Wal-Mart and analyse how they help Wal-Mart achieve its competitive advantage.

Wal-Mart uses the “Continuous Replenishment Program” to connect all stores to the company’s headquarters in Arkansas. This system can track sales of each item in every point-of-sale store and send the purchase record immediately to the central computer at Wal-Mart’s headquarters. Then, the reorder and inventory replenishment for each item will be processed automatically, across thousands of stores . They use highly automated handling systems and carefully coordinated cross-docking to move goods through the system with a minimum inventory and operate 24 hours a day. More than 85% of all merchandise sold by Wal-Mart is handled by its distribution centres, while its competitors supplied an average of less than 50% of all merchandise from their own distribution centers. So “Continuous Replenishment Program” permits Wal-Mart to tie up less money in inventory than many of their competitors, reduce the inventory cost, and allows War-Mart to lower their price to achieve competitive advantage. This information system also has ensured the sustainable performance of Wal-Mart’s distribution system and normal operation.

Another information system used by Wal-Mart is “Retail link”. It allows Wal-Mart and its suppliers to keep connected and communicate rapidly. Through retail link, the suppliers can get access to sales, shipment, orders, returns and other data on their products in Wal-Mart stores. Information sharing through Retail link significantly reduces negotiation time and lead time between Wal-Mart and its suppliers . This can reduce Wal-Mart’s cost of supply management. Around 3,800 suppliers now get daily sales data directly from Wal-Mart stores. And 1,500 have the same decision and analysis software that Wal-Mart's own buyers use to check how a product performs in various markets . The efficiency of goods supply reduces drive the cost out from tache of cooperation with suppliers, thus can help Wal-Mart achieve its completive advantage on pricing strategy.

Moreover, the “retail link” allow suppliers to know what merchandises are selling well and what are selling slowly in Wal-Mart stores. As a result, suppliers can make better decision to provide customers with goods at a lower price. This information strengthen customer and supplier intimacy, so that can develop strong ties and loyalty with customers and suppliers . In another word, the strong linkages to customers and suppliers increase the switching cost to Wal-Mart. This can strongly support Wal-Mart’s sustainable performance.

INTERNET

Internet links separate networks to each other while each of which retains it’s owned identity, in to an interconnected network so that data can be passed between these networks all over the world . Though Internet began in early 1970’s, it was not very popular until the World Wide Web and Mosaic Web browser, had taken the general public attention in early 1990’s . Since then firms use internet as a tool to achieve competitive advantage to their business in many ways.

USING INTERNET TO ACHIEVE COMPETITIVE ADVANTAGE

E-commerce is changing the economy and the way business is conducted. Internet technology forces companies to find new methods to expand business in which they compete. It is used as a tool to attract customers by meeting the needs of customers and also used to restructure the business processes to deliver the products and services efficiently and effectively. Internet can enhance the competitive advantage of a business in many ways. It quicker the business activities with less cost compare to the past such as information retrieval or research, or communication with e-mail. Internet technology is based on the standard that any company can use there for it is easy for the competitors to enter in the market, compete on their prices of goods and services. It allows the businesses to carry out business activities smoothly. Using internet customers can query company data at any time day or night from anywhere in the world. As the information is available to every one, internet cause the bargaining power of customers, who can quickly find the lowest prices on the web. Industries like travel and financial services are the mostly attack than others. Therefore, different level of adoption of internet technology has an impact on different degree of competitive advantage. There are various internet tools used to achieve competitive advantage which are explained below

INTERNET CREATE COMPETITIVE ADVANTAGE

(Source from www.cisco.com)

INTERNET TOOLS

A computer connected to the internet has access to the a verity of services to its users;

 E-MAIL

It allows send messages and share documents person to person. E-mail is one of the faster and convenient ways of communication. E-mail address is unique thus business can create their own e-mail address and use it on business cards, stationery and letters.

Automated e-mails allowed responding thousands of massages which a person cannot do manually this will also create instant turnover times which customer service department can not offer. Business also use MIME (Multipurpose Internet Mail Extension) to send attachment like corporate data or computer programs to any ware in the world with in an instant.

 USENET NEWS GROUP

It is known as discussion groups on electronic bulletin boards. This allows reader to view brief detail on each article posted in news group prior to download. Business use this tool for advertising their goods and services to the in al the news groups.

These discussion groups helps to share important benchmarking information globally so the users can gather information on various topics and work together with members of user groups to improvement in those areas.

 LISTSERVS

It is a discussion group available to e-mail users. The e-mail users send a message to the address of the particular LISTSERV of their interest, and ask the LISTSERV to subscribe the list to them. When it completed it allows the user to send and receive messages from the chosen list . Through the LISTSERV, users can access to online discussion group with a particular topic. By utilizing this kid of services users can gain competitive advantage if the competitors dose not subscribing to the list.

 GOPHER AND FILE TRANSFER PROTOCOL (FTP)

Gopher is a tool to search the internet for information on specified topics and File Transfer Protocol (FTP) is used to exchange files from computer to computer using internet. There are large numbers of Gropher services widely available in the internet so anyone can easily use this service to search for the information they need. This is the most popular tool in the era of information retrieval and business is mostly using it for the research purposes .

 TELNET

Telnet is a software which unable terminal working from remote computer.

First you can use software and data resident on that computer. For example it is possible to connect to the catalogues of many famous libraries to search for books or journals that the libraries hold and then to order abstracts or photocopies of the relevant texts. Using this software an employee can excess his/her company computer either to access e-mail or corporate data or to work remotely on some activity.

 WORLD WIDE WEB (WWW) / WEB

It is a system with universally accepted standards for storing, retrieving and displaying information using a client / server architecture . Application software allows companies and organization to create websites which offer access to a collection of information. Web page can be beneficial to the business in many ways. Attractive web pages are draw users to the site besides of achieve company’s aims. Customer driven Web pages also help create an identity for the business where people know web page exit and where to find them.

Business can use World Wide Web as medium for its day to day activities like world wide business transactions and marketing activities such as advertising, distribution, market research and public relations.

LEVEL OF INTERNET ADOPTIONS

Researchers separated business in to five groups base on the types and level of internet adoption .

 Level 0 – E-mail adoption

These companies dose not have a web site they only has an e-mail account. These companies further divided in to three groups; non adopters (firm which dose not have internet account), adopters with out websites but have internet account and adopters with web sites.

 Level 1 – Internet presence

These companies had understood the advantage of internet an have decided to adopt internet but the implementation still in process. Websites in this level provide mainly company information.

 Level 2 – Prospecting

Firms comes under this level involves limited use of internet. Companies in this level provide customers about company information, product information, news, events, email support and simple search in their web sites.

 Level 3 – Business integration

Firms in this level concerned about the integration of business processes. These web sites are more forecast on cost reduction and business support. Web sites in level 3 are more complex compare to level 1 and 2 and also have online communication and secure transactions.

 Level 4 – Business transformations

Business come under this category have most advance internet adoption. In this level firms use internet to build new relationships and seeking new business opportunities.

CASE STUDY 2: Commonwealth Bank of Australia – net bank

The first net bank in the world is established in 1995, since then banks from all over the world start their own net bank business. In order to have competitive advantages in internet, The Commonwealth Bank of Australia built its net bank center to provide services online. For the last 5 years, the net profit after tax of Commonwealth bank increases from 2501 to 4053 $M, the net bank increase from 730 to 862$M, which takes 20% of the bank’s profit. The net bank provides more reasons for the public to choose Commonwealth Bank, and also bring obviously competitive advantage to it.

Net bank has many advantages to the customers. “Whether you are at home, in the office or anywhere in the world, Net Bank gives you access to your Commonwealth Bank accounts 24 hours a day, 7 days a week.” What you need is just a computer and your net bank account number. It is built very easy to use. The customers can conduct all their day-to-day requirements through the net bank centre. They can transfer money, view balances and review transactions up to the last 2years, which save time from going to the bank or ATM. Customers can pay bills through the website too, and even apply for credit card or loans. Besides, people do not need to worry about the security, the safety of money is 100% guaranteed. Such advantages attract more potential customers, making the bank more competitive.

In addition, compared with traditional bank, net bank still have many advantages to the bank itself rather than to the consumers.

First is the advantage of low cost and low price. Because the establishment of net bank is very cheap, just equals the expense of a traditional branch. The cost of trade is also cheap. If doing a bargaining by staff in bank it cost about 1 dollar, by telephone and ATM it cost 25 cents, but by net bank it costs only 1 cent, which is just 1% of handwork. The net bank is based on a website, it is cheap to operate and maintenance. The saved cost can be shared with customers; by the way of providing higher interest, charging lower poundage and some service free, bank can win more customers and market. The Commonwealth net bank interest is more than 6%, which is really a considerable figure. Further more, with the electronic detective system, many fraud and losses can be avoid. Currently, 60% of the payments are made by cheque, the traditional paper cheque fraud make retailers lose 12 billions per year. Electronic cheque can not only decrease the potential of cheating, but also save expense and time on dealing with a large amount of paper cheques.

Secondly, the communication and durative is better. There are many ways to carry out instant communication among customers and net bank system, such as emails, account inquiry, loans application and transactions update. Then people can use the financial service of the bank at any time and everywhere, in another word bank can provide 24 hours’ service without place and time limitation.

Thirdly, the net bank system is private and standardization. Security initiatives which the Commonwealth Bank takes include: encryption, digital certificates, independent audits and so on. With the high technology, the security information associated with net bank can be ensured. The service in net bank is more canonical than traditional bank, because the difference between staff’s education and mood can be avoid.

Fourthly, net bank make Commonwealth Bank a global bank. Net bank is an open system and a bank all over the world. Net bank can provide global financial service through internet, and translate among all kinds of languages rapidly which make Commonwealth Bank develop its international market more feasible. The traditional bank must establish branches to develop international market, otherwise net bank can spread its trade and market to every country of the world only by assistance of internet. Net bank is a innovation of Commonwealth’s way of financial management, it makes the competition international rather than internal.

With the development of internet technology, the net bank will be the main aspect where banks compete fiercely. Commonwealth Bank has already taken part in this market, undoubtedly it have had advantage in this aspect. Net bank is a successful experience which has brought big profit to Commonwealth bank. Customers gain benefits from adopting net bank service, moreover the Commonwealth also expand its business. In a word, the net bank is an innovation that benefits both sides. Net bank not only improve the service quality, enlarge the customer resource, but also can decrease the handiwork cost and the pressure of building new branches. Net bank have been continuously influencing the way of Commonwealth’s serving and bringing new opportunities of income. To sum up, net bank make many advantages to Commonwealth, and make it a winner in long-term competition.

BIBIOGRAPHY

Laudon K. C., Lauden J.P. ,” Essentials of Business Information Systems”, 7th ed, Prentice Hall

Raymond Papp (2001), “Strategic information Technology: opportunities for competitive advantage”, Idea Group Publishing

William F. Achtmeyer, Wal-Mart stores, Inc.

Jiefeng Wang, Economic of IT system at Wal-Mart пјЊacademy of information and management sciences journal, 2006,9,1

Wal-Mart Annual Report, 1998

Grant R. M, Corporate culture provides Wal-Mart competitive advantage G:walmartCorporate culture provides Wal-Mart competitive advantage.mht

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