The Vanishing Advantage

The Vanishing
Carr, Chapter 4
INFS 780
Richard T. Christoph
IT’s Role in Business
 Firms have spent literally billions in
IT development
Sought a competitive advantage
 Pioneers built new systems at great
The PGAITA factor
 Most systems focused on the TPS &
 Paybacks could be huge –
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
Proprietary vs. Infrastructural
 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
Technologies in Transition
 TIVO – started as proprietary, now
CATV firms are deploying their own
 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
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
Compare with Porter’s 5 Forces
What has IT
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??
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
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
IT Increases Rivalry??
 Can IT be shown to INCREASE
It appears the answer is YES
 Rivalry increases – profits do not
 Customers benefit
 No strategic benefit to the firm
 Again, a classic infrastructural
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
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,
 Software did not exist – you wrote it
 Simple applications cost many
 Networks were slow (4800bps) and
needed special lines, gear, people
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
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
Bank software now
 All banks must offer ATM access,
single database accounts
 Bank IT has become an
No longer provides competitive
 IT now offers more RISK than REWARD
 If IT fails, customers upset – if IT works,
customers not impressed
Technology Replication Cycle
 First movers spend huge amounts
 Imitators can usually copy cheaply
 Errors are eliminated as we learn what
 Costs drop dramatically
 Followers my benefit more than first
Cost Declines of Computing Power
Cost Declines of Networking Power
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
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
 Now, we match our process to the
 Example: ERP systems
 Require firms to adjust to the ERP package
 This reduces opportunity for unique,
system-based competitive advantage
Homogenization of Process
 Carr notes:
 When a company buys a Seibel
software package for CRM, it aslo is
buying the Seibel way of managing
 An example of this is the Datatel
WebAdvisor system
All public SD schools use it – no one
has an advantage over any other school
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
 Competitive advantage is based on
effective items